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6 Smart Alternatives to Payday Loans

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6 Alternatives to Payday Loans

If you’ve found yourself in dire financial straits and need money yesterday, you might be considering a payday loan. Before you pull the trigger on one of these loans, here are some things you should know about them, plus six alternatives that could end up saving you money and additional financial frustration in the long run.

What Is a Payday Loan?

A payday loan is a short-term, high-interest loan designed to be repaid within one or two pay periods. Payday loans typically have three features: They’re made for small amounts, come due the next payday, and generally require full access to your checking account or that you write a check for the full balance in advance so that the lender may deposit it when the loan comes due. Though these features may vary from loan to loan, the cost of the loan can certainly “range from $10 to $30 for every $100 borrowed,” according to the Consumer Financial Protection Bureau, p. “A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400%.” By comparison, most credit card APRS top out in the high-20% range.

What Do You Need to Take Out a Payday Loan?

As the CFPB explains, payday lenders mainly require applicants to have an active checking account, income from a job or other source, valid ID and to be at least age 18. Additional criteria, like a minimum amount of income, may also be required. Some web-based startups, like, which launched in 2012, uses your Facebook and Twitter accounts to determine your creditworthiness, though it charges similar fees to standard payday lenders: about $30 to borrow $200.

For these reasons, online payday loans, so-called “bad credit loans” and regular payday loans alike can become a proverbial money trap for consumers who feel they have no other alternatives. But there are options. Payday loans should be used with extreme caution and considered a loan of last resort –— that is, only if you can afford to pay the loan back in one to two pay periods. Otherwise, it’s worth considering the following alternatives to payday loans.

1. Negotiate a Payment Plan With the Creditor

If you’re having trouble with your monthly bills or need an extension, you can call your creditor or utility company and ask for more time. You’ll be surprised how many are willing to work with you and offer an extension. Some make it very simple by making a short extension an option on their website.

It’s good to keep in mind that making late payments without contacting the creditor can drag down your credit score if your payments are being reported to the credit bureaus. (If you’re not sure where you stand, you can view two of your credit scores for free on

2. Ask for an Advance From Your Employer

If you’ve had a financial emergency, consider talking to your employer for an advance on your salary. The benefit of an advance is that it’s not a loan but your money — you’ll just be getting it sooner than normal. It’s much cheaper than a payday loan because there is no interest. After all, it’s not a loan.

3. Borrow Money From Your Savings Account

If you have a savings account or emergency fund, consider tapping into it. If you don’t have a savings account or an emergency fund, make it a point to start one as soon as you can so that you have a cushion when life throws you a curveball. Even if you start with just $10 a week, every little bit adds up. It can be a lifesaver when the unexpected happens.

4. Consider a Credit Union Loan

If you’re a member of a credit union, consider talking to your member services department. Many credit unions offer small, short-term emergency loans to help their members get back on their feet. Credit unions offer low-interest loans that are much more affordable than those from traditional banks, and their approval process is often more flexible.

5. Ask a Relative to Lend You the Money

Be careful with this option. If a friend or relative is willing to help you out with some cash, make it a point to pay them back as quickly as you can. The last thing you want to do is let your money emergency ruin the relationship.

6. Consider Credit Counseling

If your financial situation is spiraling out of control, consumer credit counseling can be a great resource to help you analyze your debt, define a realistic, personalized budget and negotiate lower interest rates and lower monthly payments. It’s important to make sure you’re working with a legitimate credit counseling service and not an operation that preys on financially strapped consumers. To find an accredited consumer credit counseling service, you can visit the National Foundation for Credit Counseling or call 1-800-388-2227 to find a credit counselor near you.

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