You’ve likely heard this from friends, family, coworkers… Payday loans can quickly turn into a financial headache if you’re unable to repay the payday loan in full and on time. Luckily, there are some alternatives to getting a payday loan.
The best way to avoid needing a payday loan…
One of the best ways to avoid needing a payday loan is by tightening up how you manage your money. Creating and sticking to a realistic budget at the start of every month can be the best way of balancing your income and expenses. This can also help you prepare for emergencies and help prevent extra spending. Budgeting can be as simple as taking your monthly income and setting aside a certain amount for preplanned categories such as food, bills, and entertainment. By setting realistic limits on the amount you spend each month, you can begin to save money. This takes a lot of discipline, but it can also reward you with the additional savings you need for emergencies, improve your credit score if you make payments on time, and keep more money in your pocket. But what if you still need a cash advance?
IF you do need the extra cash, here are many payday loan alternatives
Whether you’re trying to pay bills, consolidate debt or pay off a debt with a creditor, there are many alternatives to a payday loan you can choose from.
Personal loans from family and friends
Sometimes the most convenient way of getting an emergency loan is by getting help from a close friend or family member. Friends and family members are usually willing to help with a short-term loan if they feel they can trust the borrower to pay back the loan. This can be the easiest way of avoiding any expensive fees or high interest payments.
Green Dot recently launched a destination for personal loans, Green Dot Money. We’ve handpicked lenders and want to help you find a YES, in what can seem like a sea of “Nos.” You can head over to Green Dot Money to search for a loan today.
Also, Credit Unions often offer small, short-term loans to customers, which can sometimes be processed quickly for emergency situations. Since credit unions are non-profit, cooperative financial institutions, loan approval is easier than at a bank and the loans usually have a lower interest rate (about 18% APR). Some credit unions also offer free financial counseling to help customers with their financial problems.
Payment plan with creditor
If you need a loan to pay off a creditor, such as a credit card, you may want to try to negotiate the debt with the creditor directly. Most creditors will help you pay off a debt by offering a payment plan. To keep you as a valued customer, some creditors may even offer you a lesser amount to pay back – sometimes as little as 70% of your original debt.
Cash advance on a credit card
A cash advance on a credit card may be the closest alternative to using a payday loan. Some credit card companies specialize in helping those with bad credit or financial problems. Credit card companies usually offer cash advances at a lower rate (about 30% APR) than payday loans. The biggest advantage to a cash advance on a credit card is that you can avoid paying the interest if you’re able to pay off the balance by the next billing statement.
Emergency assistance programs
If you’re having trouble paying bills, try finding help within your community. Social groups, organizations within your community, and faith-based organizations can give you emergency help – either directly or through local social service programs. State and federal programs such as the federal Low Income Home Energy Assistance Program (IHEAP) are also available to assist low-income households that need help paying home heating and cooling bills.
Consumer counseling agencies
Are you looking to consolidate debt? Consumer counseling agencies are available to those seeking assistance with paying down large debts. Counseling agencies can help negotiate with creditors on your behalf to create a debt management plan (DMP). Counseling agencies can also help you create a budget and give you training on useful financial management practices at little to no cost.
If you’re in the armed forces, several companies offer military loans to active and retired members. Military loans range from $500 to $10,000. Interest rates on military loans are much lower than payday loans (usually ranging from about 33% to 34.99% APR).
Paycheck advance from your employer
Did you know that you can request a paycheck advance from your employer? Sometimes, employers will agree to this if the employee is in good standing with the company. Employees should avoid doing this if a cut in future paychecks (due to the advance) will cause financial struggle.
How to choose a payday loan alternative
1) Choose a loan that has a 90-day repayment term.
Why: Payday loans have short repayment deadlines (usually two weeks) leaving borrowers with not enough time to fully pay the loan off. This can cause borrowers to rollover the loan and incur more charges.
2) Choose an alternative without check requirements or any other forms of unfair collateral.
Why: Most payday loans require a postdated check to get a loan. But, if the check is drawn on an account when there are not enough funds, the borrower can be responsible for number of penalties such as overdraft fees, lender penalties, and the chance of having their bank account closed.
3) Choose an alternative, which considers the borrower’s ability to repay the loan.
Why: Payday lenders don’t require any credit checks or deposit account verifications making them easy to get regardless of imperfect or bad credit. This can be misleading because lenders often give payday loans to borrowers they know can’t pay it back in time in hopes of making the borrower pay more fees on the loan.
4) Choose a loan with reasonable rollover limits.
Why: Most payday loans force borrowers into debt by giving continuous loan renewals – allowing you to take out a new payday loan to pay off the old one. After four or more rollovers, the fees that come with renewing the loan can be much higher than the original amount of the loan. Selecting a loan with rollover limits can help prevent the possibility of falling into a debt trap. Limits can include: limiting the number of rollovers on a loan or preventing a previous loan to be paid by a new loan from the same lender. Lenders can also require a cooling off period for the time between paying off a loan and opening another one.
Green Dot Money is a service of Green Dot Bank, a wholly owned subsidiary of Green Dot Corporation (collectively, “Green Dot”). Green Dot is not the lender. The name of the proposed lender will be disclosed if and when a conditional offer is made.