Close to 50% of Americans have little to no savings, and almost 70% have less than $1,000 saved for emergencies. If you’re in a situation where you suddenly need cash to cover a necessary expense, you’re not alone. Many people turn to payday loans during these times, but that can be an expensive—and risky—option. That’s why payday loans might not be the best choice. But don’t worry—we’ve lined up seven low interest payday loan alternatives.
What Are Payday Loans and What Are Common Issues with Them?
Payday loans are short-term cash loans. Typically, you don’t need good credit for these loans because they’re based on how much you make. The lender usually requires that you pay the funds back within one or two payday cycles and charges a fee for the service.
When you convert the payday loan fee into APR numbers, though, the interest is extremely high. Some states have protections against extremely high payday loan rates, but in other states, the rates can be 600% or more.
On top of the high interest rate, the fast payment terms can get people in trouble with payday loans. If you didn’t have the money this payday to cover an expense, what are the chances you’ll have it next payday? You still have to pay normal living expenses like rent and groceries, so you may need most of your paycheck to do that.
That leads to people getting trapped in a cycle of rollovers. You can roll the payday loan over, effectively borrowing again instead of paying back the loan the next payday. The lender will then charge yet another fee. Some lenders only allow a few rollovers, but others allow many, which can trap you in a cycle where you owe increasing amounts in fees.
7 Alternatives to Payday Loans
Many times, you can find a better alternative to covering immediate costs or improving your cash flow. Consider these seven payday loan alternatives, most of which come with interest rates and terms that may be friendlier to your wallet.
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1. Home Equity Line of Credit
A home equity line of credit, or HELOC, is an option if you own your home and have equity in it. Equity is the value of your home over the amount you owe. For example, if you owe $150,000 and your home is worth $200,000, you have $50,000 in equity.
Banks may approve you for a line of credit that’s equal to part of the equity. In this case, for example, you may be able to get a HELOC for $30,000. You can then draw on that line of credit like you would a credit card, using it to make payments or buy things and paying it back over time.
Because the HELOC is secured by the value of your home, it typically has a much lower interest rate than other loan types. And certainly a much lower interest rate than payday loans.
2. Paycheck Advance Apps
Some apps let you take out advances against your own paycheck, effectively getting a little of that money earlier than you’d normally receive it. Some of these apps, such as the Earnin App, don’t have mandatory or high fees. But they tend to have fairly low limits, making them an option for times when money just doesn’t quite stretch between paychecks. This might not be an ideal solution for larger money needs.
3. Bad Credit or Personal Loans
Personal loans are typically a much better option than payday loans if you need fast cash immediately. Typically, personal loans let you borrow a few hundred to a few thousand dollars and pay it back over time. Short-term personal loans can be paid back in a few months or a year or two, which lets you break the payments up to something that may be more affordable in your budget.
You can also get bad credit loans, which are personal loans designed for people with bad credit. OppLoans is one example.
4. Credit Cards
If you have credit good enough to get a credit card, this may be a better option than a payday loan for a number of reasons. First, the interest rates on credit cards are typically a lot lower, and you have some flexibility with regard to how fast you pay back the money.
Those with decent credit may be able to qualify for a credit card with an introductory APR offer. That means you can put charges on the card and pay them off interest-free—as long as you pay the balance off in a certain time period. Common periods range from nine months to two years on introductory offers.
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You might also be able to get a rewards credit card and earn sign-on bonuses, cash back or travel rewards when you use your card. That can help you reduce the total cost of the expenses you need to cover. Just make sure you pay attention to your credit utilization and how it might be impacting your credit score.
5. Tax Withholding Adjustments
If you just need a little more each payday to make ends meet, consider adjusting your tax withholdings. If you’re not claiming all your dependents on your W-4 form, the IRS may be getting money throughout the year that’s really yours.
Some people do this on purpose so they get a bigger refund each year. But if you need that money now, ensuring you get it upfront instead of waiting is better than borrowing money you have to pay interest on.
6. Payment Plans or Payment Arrangements
If it’s simply a matter of one bill looming that you can’t pay right away, consider contacting the creditor or company. Many have programs for this purpose, especially if you’re someone who normally pays on time regularly.
The lender, utility company or other entity you owe may be able to offer a one-time forgiveness of late payment, let you skip a payment and add it on to the end of the terms or let you break the payment into multiple smaller payments. Even if it seems like a debt collector is demanding payment in full, you may have some options.
7. Cutting Expenses and Getting a Side Gig
A final option for dealing with a cash flow issue is reducing your expenses and increasing your income. Either one can help, and if you can manage both, you may be able to improve the situation even faster. Find ways to reduce spending in your budget, or consider side gigs that help you make some extra cash to cover bills or put into savings for future needs.
Plan for the Future
A cash flow issue today doesn’t have to mean financial issues for your entire future. Making the smartest decisions for you today, which often doesn’t include payday loans, can help you build a more stable financial situation tomorrow. Consider these alternatives to payday loans to help you get started making smart money decisions now.
