Payday loans are part of a predatory industry that takes advantage of its position as a last resort for millions of Americans in dire financial straits.
If you find yourself in that position, you have more options than you think. Tons of payday loan alternatives can help you get the money, resources or help you need to make it to your next payday â€" and set yourself up with a financial cushion for the future.
What Is a Payday Loan?
A payday loan, or cash advance, is a way to borrow money immediately against your expected earnings. These short-term loans come from private companies, not credit unions or banks.
Usually, to qualify for a payday loan you need to show some recent pay stubs to vouch for your income history, but you won't have to go through a credit check. Loans are typically a few hundred dollars at most and come with a flat fee.
Payday loans usually come due with your next paycheck, and the lender might connect to your bank account to automatically withdraw the amount owed on the due date. If you don't have the money to repay on the due date, you can usually extend the loan another paycheck for an additional flat fee plus a late fee.
Why You Might Get a Payday Loan
We know that, despite the critiques from personal finance experts, high-interest payday loans make sense for a lot of people. Around 12 million Americans use payday loans each year.
People without college degrees and those earning less than $40,000 a year are most likely to take out payday loans â€" it's no big surprise you'd be scraping by between paychecks in those circumstances. And 69% of payday loan borrowers use the money to pay for recurring expenses like rent, food or bills. Another 16% spend the money on unexpected expenses.
You might have already exhausted your options to borrow interest-free from family or friends â€" or they don't have the resources to help, or it's not safe to ask them. When you're looking at a growing pile of financial obligations on a low income, facing consequences like eviction, the TV ads and flashy storefronts offering quick cash look pretty promising.
Downsides of a Payday Loan
Most payday loan borrowers are aware of the high costs and drawbacks of payday loans, including fees that amount to an annualized interest rate of 400% on average.
Payday loan fees might look reasonable at first. The Consumer Financial Protection Bureau says a typical fee is about $15 for every $100 borrowed.
But if you don't repay the loan by the original due date â€" usually within two weeks or your next payday â€" you'll owe a late fee, plus another $15-per-$100 fee for the extended loan. And again, if you don't repay by the new due date. And so on.
These high costs, especially compared to other ways of borrowing, are why financial experts recommend you avoid payday loans if you can.
17 Payday Loan Alternatives to Help out in a Pinch
- Non-profit charities
- Emergency public assistance programs
- Peer-to-peer lending
- Crowdfunding
- Pawn shop loans (with or without selling something)
- Payday alternative loans from credit unions
- Secured loans
- Personal loans
- Lending circles
- Credit card cash advance
- Paycheck advance from your employer
- Advances from loan apps
- Loans from your bank account
- Overdraft protection
- Payment plans and bill negotiation
- Redirect debt and savings payments
- Make money fast
Before turning to the lender in the corner store, consider these alternatives to payday loans to see if any of them can offer the financial relief you're looking for â€" without incurring the high costs.
1. Non-Profit Charities
Tons of local and national charities exist to support people in need, including:
- Cash transfers: GiveDirectly puts cash in the hands of people around the world who need it. In most cases, the organization invites people from targeted communities to participate, but if you live in southwest Georgia, you can apply directly for funding through its partnership with the Georgia Resilience and Opportunity Fund.
- Grants: Modest Needs grants are designed to help you cover emergencies or monthly bills if you're tight on money but just out of the range of income that would make you eligible for government assistance. Start here to apply for a Modest Needs grant.
- Food banks: Feeding America operates a network of food banks around the U.S., which can give your household free groceries each week or month. Find your local Feeding America-affiliated food bank here or search for 'food banks near [your city]' to find others.
- Tenant resource centers can help you enforce your rights as a tenant as well as direct you to rental assistance programs. Search for 'tenant resource center in [your city]' to find resources near you.
2. Emergency Public Assistance Programs
The U.S. government continues to take applications and distribute funds through Emergency Rental Assistance programs launched in response to the pandemic economic crisis, though your financial hardship may not need to be directly related to the pandemic.
Find your local, state or tribal program through the U.S. Treasury's Emergency Rental Assistance directory to find out how to apply for assistance.
3. Peer-to-Peer Loans
Apps that let you borrow small amounts of money from regular people making loans could be an important alternative to payday loans. Here are some options:
- SoLo: The only app we've found so far that's explicitly dedicated to fostering community support through peer-to-peer lending. You can borrow between $50 and $500, set a repayment date and specify a 'tip' between 0% and 12% for your lender. Lenders (individual people) choose loans to fund, and you receive the money as soon as a loan is funded. Learn more and apply for SoLo Funds here.
- Zirtue: Through the Zirtue app, you can request money from anyone you know by entering their phone number. You can use Direct Bill Pay to send funds to a service provider or ask for a custom loan amount into your bank account (which takes two to five days via ACH transfer). Zirtue automatically repays the loan from your connected account either in a lump sum or through monthly payments.
- Lenme: More similar to a traditional peer-to-peer lender, Lenme lets you request loans between $50 and $5,000 with your desired repayment period from individual or business investors. Investors review loan requests and make offers, including interest rates, and you choose which to accept. You'll get funding in up to one business day, and Lenme automatically repays the loan through monthly payments from your connected account.
4. Crowdfunding
Traditionally, crowdfunding is designed to let an audience support creators. But GoFundMe has distinguished itself from the crowd as the place for fundraising for individual needs or causes.
You start a fundraiser on GoFundMe by creating an account and sharing your story. Share the fundraiser with people you know through social media, email or direct messages to ask for donations. You can request withdrawals as soon as you start receiving donations â€" you don't have to wait for the end of the fundraiser â€" and get the money in your bank account in two to five days via ACH transfer.
You can raise money for just about anything on GoFundMe, or try these platforms for more specific needs:
- CoFund Health is a medical crowdfunding platform that lets you solicit donations and puts your balance on a medical debit card you can use at pharmacies, doctor's offices, hospitals, clinics and other medical facilities.
- MedGift is a 501(c)3 charity that lets you set up a support page to fundraise and let friends and family know about non-financial needs, like a calendar for day-to-day care and a wish list.
- Divorcist lets you create a gift registry and cash fund to ask for support when you're leaving a relationship.
5. Pawn Shop Loans (With or Without Selling Something)
You're probably aware of the option of pawning items you own to put some money in your pocket. In many cases, you can then buy back your item from a pawn shop if you recoup your money before it sells to someone else.
Pawn shops in some areas also give out loans, using your pawnable items as collateral. Compared with secured personal loans, these are usually for a much lower amount, like $150, with terms of just one or two months. You won't be charged an interest rate, but instead a flat fee that could compute to a pretty unattractive interest equivalent.
6. Payday Alternative Loans From Credit Unions
Got a federal credit union nearby? If you're a member or eligible to be â€" which often depends on your state or county of residence, but may not require anything at all â€" look into its payday alternative loan (PAL) options.
Payday alternative loans can be available as soon as you establish membership with the credit union â€" which, in some cases, you could do today just by walking in and signing up. They're any amount up to $2,000, with terms of one to 12 months and interest capped at 28%.
7. Secured Loans
If your credit score is preventing you from getting a traditional personal loan or a credit card, you might still be able to qualify for a secured loan to get the cash you need.
A secured loan is one backed by collateral â€" i.e. something you put on the line to show the lender you're good for repayment. If you don't repay on time, the lender could take possession of your collateral and sell it to recoup some of the loss.
If you expect to have trouble repaying the loan as scheduled, don't take out a secured loan. It would put your asset at risk and possibly hurt your financial situation rather than help.
Types of secured loans include:
- Secured personal loan: Some personal loan lenders let you borrow a personal loan with collateral, which could range from a vehicle, boat or RV to jewelry or other valuables. Many online lenders pay out within a day or two.
- Home equity loan: If you own a home and have paid off some of the mortgage, you could borrow from the same bank or another one, using your home's value as collateral.
- HELOC: A home equity line of credit is also for homeowners and uses your home's value, like a home equity loan, but it's a revolving line of credit instead of an installment loan â€" so you only use what you need and repay what you use, like a credit card.
- Auto title loan: An auto title loan is a loan that uses your car as collateral. They're often predatory loans, like payday loans, so they've been made illegal in some states and are heavily regulated in others. Where you can get one, interest rates tend to be only slightly lower than those for payday loans, around 300%, according to the FTC. Consumer Federation of America shares an overview of car title loan regulation as of 2016 to give you an idea of options in your state.
8. Personal Loans
You could try to borrow a personal loan without putting up collateral, which is much less risky and usually requires a better credit score. If you don't qualify on your own, a co-signer or co-borrower with a higher credit score could help you get approved.
Browse our list of bad credit loans to see if you might qualify for this kind of funding.
In particular, SeedFi's Borrow and Grow loan lets you borrow between $300 and $4,000 with same-day funding and sock away an additional $650 to $4,000 as you repay. Payments are $40 to $160 every two weeks, aligned to your paydays. (SeedFi is available in 35 states and Washington, D.C.)
9. Lending Circles
This isn't an option if you need cash today, but once you're on more stable financial footing, a lending circle could help you prepare for unexpected expenses in the future.
A lending circle is a small group of people who contribute to a pot and take turns receiving a loan from the pot. Here's how it works:
- You determine the amount of the loan the circle will make â€" say, $1,000.
- Each group member contributes a portion of the loan to the pot monthly â€" e.g. 10 members might contribute $100 each per month.
- One member receives the amount of the loan each month on rotation.
A lending circle is basically a way to work with a community to build a small savings fund. The benefit is that you could have access to the funds sooner than you'd be able to save the money yourself. The drawback is that payouts are made on a rotation, so this isn't a perfect option to count on for emergencies.
You can start a lending circle with any group of people who are interested, or sign up with an app like Mission Asset Fund to connect with a new community.
10. Credit Card Cash Advance
If you have a credit card with an available balance and need money for a rent payment or other cost you can't pay directly with the card, you could pull out a cash advance against your available credit.
Check your credit card agreement (or summary in your online account) for details on cash advances. They're often capped at a lower amount than your full credit limit, might come with a withdrawal fee and sometimes incur a higher interest rate than your normal credit card use.
11. Paycheck Advance From Your Employer
Some small employers might be willing to offer you an interest-free advance on your upcoming paycheck when you need money, which could save you a ton of hassle and cost on payday loans. Some larger companies might even use payroll platforms that have built-in options for a paycheck advance â€" so you don't have to talk to your boss about your financial needs.
Check your employee handbook or talk to someone at work you trust to learn your options for a direct paycheck advance.
12. Advances From Loan Apps
Lots of apps are built specifically to help you access money you've earned as early as possible. They can take a little time to get set up and approve you for borrowing, so these might not be the right solution if you need money now, but could help in the future.
- Empower: Get a cash advance of $25, $50, $75 or $100 with no credit check, no interest and no fees. Funds are available instantly if you have an Empower debit card or within a couple of days if deposited to your connected back account.
- Brigit: Get a cash advance up to $250 to be repaid with your next paycheck. No credit check and no interest. Accounts are free, or you can pay $9.99 a month for instant cash transfers, credit building and auto advances when your account runs low.
- Earnin: Cash out up to $100 per day ($500 max per pay period), depending on your earnings history. No credit check, interest or fees; but you can add a tip if you want. The cash out amount and tip will be repaid on your next payday.
- Cleo: A money management app that lets you borrow up to $100 with a paid monthly subscription. New users usually qualify for $20 to $70 advances, and your limit goes up as you repay.
- FloatMe: Connect your bank account for instant cash advances up to $50. New users qualify for $10 to $30, and your limit goes up as you repay and use the app to manage your finances.
13. Loans From Your Bank Account
You might have to go outside of your own bank account to find the cash you need. Plenty of traditional and online banks offer ways to get interest-free cash advances when you need them.
- Albert: This banking and investment app offers a cash advance to account holders of up to $250 with no credit check or interest. Get cash instantly for a fee, or for free in two to three days.
- Dave: This banking and money management app offers cash advance to account holders up to $250 with no credit check, interest or fees.
- Bank of America: Balance Assist is BofA's small-dollar loan program for customers with a bank account at the institution for at least a year. Borrow up to $500 instantly for a $5 fee, and repay in three monthly installments.
- U.S. Bank: Simple Loan lets you borrow up to $1,000 instantly if you've had a bank account with U.S. Bank for at least six months. The fee is $6 per $100 borrowed (APR of 35.6%).
14. Overdraft Protection
Overdraft 'protection' from banks gets a bad rap because of high fees â€" and that's fair. But don't necessarily discount this option if your bank offers it. Just use it intentionally.
An overdraft fee is charged per transaction, not as a percentage of the transaction. A major payment, like rent, could cost you less with a one-time $35 fee than a high-interest payday loan.
Even better, prepare for the next time you're in tough financial straits by asking your bank about overdraft protection options. You might be able to connect a savings account for free automatic transfers, set up a line of credit or have access to a program like SpotMe with Chime, which covers overdrafts up to $200 with no fees.
15. Payment Plans and Bill Negotiation
Are you worried about cash because of a looming utility or medical bill? You might not have to pay it â€" or, at least, not all of it and not by the current due date.
You can negotiate medical bills and other bills by contacting the provider. They usually offer options few people know about (because they don't advertise them).
Ask for a payment plan â€" and don't be afraid to quote a low monthly payment you're comfortable with! We've heard of people getting bill collectors off their back with payments of just $25 or even $1 per month. You can also ask for an extended due date or to change the due date in the future to one that lines up better with your paydays.
16. Redirect Debt and Savings Payments
Kudos if you're committed to your financial goals â€" but be careful not to stick to them to the detriment of your day-to-day finances.
We definitely recommend tapping a savings account before taking out a pricy payday loan. (If you have access to a more reasonable loan, the pros of building your savings might outweigh the cons of taking on debt; do what makes sense for you.)
If you're paying more than the minimum payments on any debts, this could be a good time to pause and pull back on that, especially if those debts are lower interest than a payday loan. Use your cash flow to cover your costs now, and return to your financial goals when you've got more breathing room.
You might even benefit from pausing payments on some debts for a month or two so you can get your head above water. Contact your credit card company or lender to talk about economic hardship options â€" you may be able to defer your payments a few months without incurring late fees or defaulting on the loan.
17. Ways to Make Money Fast
Finally, if you find yourself running out of money before payday â€" especially if this isn't your first time â€" consider ways you could make extra money to boost your bottom line.
Try these tips to put money in your pocket today without borrowing or asking for assistance. And consider creating a side hustle to earn money doing something you enjoy, if your life has room for it.
What to Do If You're Already in Debt to Payday Lenders
You're not alone if you already have an outstanding payday loan and you're seeking additional funds. As much as 70% of payday loan borrowers take out a second loan within a month.
This ongoing debt cycle is what leads to exorbitant fees… which balloon your costs and make it harder to get out of the cycle. Worse, another predatory industry â€" debt relief â€" will be knocking on your door soon, offering you overblown promises that are hard to say no to.
If you're sitting on debt that feels like it'll never budge, steer clear of those cold callers and look into these legitimate options for payday loan relief:
- Work with a certified credit counselor. A non-profit credit counseling service will assess your financial situation and walk you through your options to manage debt.
- Ask for an extended repayment plan. Some states require payday lenders to offer longer terms with smaller payments without charging an additional fee. A credit counselor can help you determine options in your state.
- Consider payday loan consolidation. A debt consolidation loan repays your outstanding debts and leaves you with just one monthly payment to manage, usually with a longer repayment period and lower interest than a payday loan. If you don't qualify for most personal loans, look into bad credit loans, credit builder loans or seek a co-signer to up your chances of approval.
- Negotiate a debt settlement. A settlement gets your lender to agree to clear the debt for a lump sum payment lower than the outstanding amount. You can negotiate yourself or hire a debt settlement company, which charges fees of 15% to 30%. Be wary of companies that offer to negotiate for an upfront fee; they could cost you money with no guaranteed results.
- File chapter 7 bankruptcy. Chapter 7 bankruptcy is the most common type of bankruptcy for individuals, and it could wipe out your outstanding debts if you show you don't have the means to repay it. It'll stay on your credit report for 10 years, which makes it tough to qualify for credit or loans in that time.
- Consult an attorney. Payday lenders use all kinds of predatory and illegal methods to scare borrowers into paying up. If your lender makes threats, like garnishing your wages, consult free legal aid in your area to learn your rights and recourse. (Hint: It's very hard for private companies to garnish your wages; if you haven't been to court, they don't have that right.)
Find the Support You Need
Payday lenders serve a purpose for a lot of families. But they've taken advantage of the need in low-income communities for decades, offering short-term bandages to long-term, systemic wounds.
No solution is ideal when you're pursuing it out of a need to make ends meet, but we want you to know all the options on the table before opting for the shop on the corner with the loudest ads.
Dana Miranda is a Certified Educator in Personal Finance®. She's written about work and money for publications including Forbes, The New York Times, CNBC, The Motley Fool, The Penny Hoarder and a column for Inc. Magazine. She founded Healthy Rich to publish stories that illuminate the diversity of our relationships with work and money.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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