Alternatives to Payday Loans

Payday loans can be extremely costly in the long run. In general, it’s best to avoid payday loans whenever possible. There are a few other options you should consider before resorting to a payday loan.

Ten Alternatives to Payday Loans

  1. Payment Plan

Your first option is to negotiate with the creditor to whom you owe money. Ask if you can postpone payment temporarily, or negotiate a lower payment in the meantime. Set up a payment plan that is within your budget. This will help you to avoid the necessity of taking out a loan altogether, and many creditors are open to these options as long as you communicate early.

  1. Paycheck Advance

For rare emergency situations, employers may agree to paying you in advance. This comes with no interest since it’s an advance of your own money rather than a loan. Check with your boss or human resources to see if this is an option. If it’s a special circumstance, they may be open to it.

  1. Credit Card Cash Advance

Like all cash advances, credit card cash advances usually still come with a high interest rate. However, they are still more affordable than payday loans, and are preferable in a number of other ways.

  1. Personal Installment Loan

A personal loan from a responsible lender is much more regulated and safe than a payday loan. These loans allow you to pay less in the long run than you would with a payday loan, and you can repay in installments according to your ability to make payments. Check with your local bank, credit union or other financial institution to see if they offer personal loans.

  1. Bank/Credit Union Cash Advance

Many banks and credit unions also offer cash advances or overdraft protection. They will generally be more expensive than personal installment loans, but are still worth checking into if a payday loan is your only other option.

  1. Peer-to-Peer Lending

There are several websites that connect people in need of loans with others who are able to help. These websites support people when traditional financial institutions aren’t able. With Upstart, for example, interest rates usually depend on a variety of factors, not just your credit score, and you can use the loans to pay for a range of circumstances.

  1. Life Insurance Loan

If you have cash value in your life insurance policy, most policies will allow you to take out a loan without penalty. There is no deadline for repaying the loan, but if you neglect to address it, the debt will be passed onto your life insurance benefit.

  1. Retirement Accounts

You can often borrow from your individual retirement account (IRA) or your 401(k). You can borrow from your IRA without any penalty as long as you put the money back within 60 days; otherwise, you pay taxes and a 10% penalty if you’re under the age of 59.5 years old. This only applies once a year, however. Only some employers permit loans on 401(k) accounts; some offer loans with a five-year repayment period, so check with your employer to find out the details.

  1. Car Title Loan

A car title loan is an option for emergencies when immediate cash is needed and other lines of credit are not available. Car title loans involve offering the title to your car as collateral in exchange for a loan. They generally involve high interest rates, and can be costly in the long run. Usually, you have up to 30 days to repay a car title loan.

  1. Friends and Family

If you know you’ll be able to repay your loan in a timely manner, consider asking friends or family for support. This is a good option only if you know it won’t put undue strain on your friends and family. Though this arrangement is less formal than other types of loans, you should still treat it with the same respect. Consider offering to repay with interest, and set up a repayment schedule.

  1. Pawnshops

If you have a valuable item to offer as collateral, pawn shops are another place to get a fast loan. Interest rates can vary widely by location, so research specific pawn shops in your area and ask them about their policies.