If you need money fast to cover an emergency or essential living expense, you may be tempted to take out a payday loan.
These loans are often easy to get—some lenders won’t even check your credit score. However, because of their sky-high fees—which can be equivalent to annual percentage rates (APRs) as high as 400%—you should avoid this type of loan. Need payday loan help? You should only use it as a last resort.
Consider one of the nine payday loan alternatives below to keep more of your hard-earned cash.
1. Apply for a Payday Alternative Loan
Some federal credit unions offer payday alternative loans, which are loans designed to provide a lower-cost alternative to payday loans. With this option, you can borrow up to $2,000 and the loan term ranges from one to 12 months. The maximum interest rate is 28%, which is far better than what you typically see on a payday loan.
For example, here is a look at the maximum allowed percentage pate for payday loans by state based on a $100, 14-day loan. Click on a state below for more information.
To qualify for a payday alternative loan, you’ll need to be a member of a federal credit union that offers this loan type.
2. Borrow From a Credit Union
Unlike traditional banks, credit unions are not-for-profit, member-owned institutions. Because of this, you may find cheaper rates at a credit union for credit union personal loans and other types of loans. Also, credit unions usually have less stringent eligibility requirements than traditional banks, so you might qualify to borrow money with less-than-stellar credit.
Similar to a payday alternative loan, this option requires you to be a member of a credit union.
3. Apply for a Bad Credit Loan
If your credit score falls in the fair credit score range (580 to 669), according to the FICO credit scoring model, you may qualify for a bad credit loan. Lenders who offer bad credit loans may approve applicants with credit scores as low as 580. To qualify for a loan with a score less than 580, consider using a co-borrower or co-signer, if the lender permits.
In addition to your credit score, lenders will base your eligibility on other factors, such as your income and debt-to-income (DTI) ratio. Although you probably won’t secure the best interest rate with a fair credit score, lenders usually have a maximum interest rate in the mid-30s. Although this rate is high, it’s far lower than what you’d get with a payday loan.
Before you apply, prequalify with multiple lenders, if possible, to get an idea of what the interest rate and terms of your loan could be prior to applying. Be prepared to provide personal information, such as your income, Social Security number (SSN) and birthdate when you complete the formal application process.
4. Form a Lending Circle
To help pay for future unexpected expenses, consider forming a lender circle. A lender circle is where a group of people set aside a certain amount of money each month and pool it together. Depending on the lending agreement, one member might be able to borrow the full amount one month, while another can borrow the full amount later.
You can join a lending circle online or create a lending circle with your family and friends. Some online lending clubs report member payments to the three credit bureaus, which may improve your credit score.
5. Borrow From Friends and Family
Another way to avoid the high interest rates and fees of payday loans is to ask your family members for a family loan or to borrow money from your friends. It can also be easier to get the cash you need since you don’t have to go through the formal application process.
Once the family member or friend agrees, you should create a loan agreement, which should include repayment terms and the interest rate (if any). One important note: Repay the loan on time to maintain a healthy relationship with the family member.
6. Get Help With Bills Through Payment Plans
If you struggle to pay your bills, ask the provider if you can set up a payment plan. That way, you can avoid having to pay the bill in one lump sum. Some lenders may have a forbearance or deferment program in place to help you get through rough times.
With this option, keep in mind that you’ll likely incur interest and fees. However, the extra interest and fees might be worth paying if it helps you avoid taking out a payday loan.
7. Create Alternative Ways to Make Money
Boosting your income might help you avoid taking out a payday loan. Although earning more money is easier said than done, a lot of opportunities exist online and offline. Some online opportunities include freelance writing, taking surveys, and beta testing apps and websites. Offline opportunities include driving for DoorDash or Uber, selling used items in a garage sale and working a part-time job on the side.
8. Use a Credit Card Responsibly
Another way to avoid the high interest charges and fees of a payday loan is to use a credit card responsibly. This means using your credit card only for purchases you can afford to repay on or before the due date. Paying your balance in full on or before the due date can help you avoid interest charges altogether, late fees and possible damage to your credit score.
Also, if you have a credit score of 700 or higher, you may qualify for a 0% APR credit card. This type of card comes with an interest-free promotion period that lasts up to 21 months. As long as you pay the balance due before the promotional period expires, you can avoid interest. Afterward, the remaining balance will accrue interest charges until fully repaid.
9. Apply for Financial Assistance Programs
Depending on how much you earn, you may qualify for financial assistance programs in your area. Some programs may offer rental assistance, while others can help you pay for food and other expenses. To find these programs, consider reaching out to your local library or chamber of commerce.
If you want to avoid the skyrocketing costs that come with a traditional payday loan, choose another financing option from this list. Compare each option and assess which one is best for your specific situation. The most cost-effective option you qualify for is likely the right one for you.