The best alternatives to payday loans for April 2024

Payday loans are short term cash loans that come with hefty interest rates that can be as high as 390% to 780% annual percentage rate (APR). That is why these loans are often labeled as “predatory loans” and banned in many states to protect consumers.

If you were to borrow, say, $100 with a payday loan with a 780% interest rate, you would be paying a minimum of $780 plus fees by the end of the year.

Repaying these loans is typically tough because the borrower ends up using the repayment money to cover the interest and has difficulty paying down the loan principal. Sneaky fees also make repayment challenging. The good news is that there are better loan alternatives to payday loans. Read on to learn more.

10 alternatives for payday loans

1. Credit unions

Credit unions are not-for-profit organizations primarily created by and for people who work at a certain job, worship in the same place, or go to the same school. Government employees often have access to credit unions. Credit unions typically require members to buy in for $5 to $25 to per share. Once you’re a member, the union offers financial services such as loans, savings and checking accounts.

Getting a loan from a credit union is a good alternative to a payday loan because credit union loans have lower interest rates. These rates range from 7.5% to 30% APR.

2. Credit card cash advances

Credit card cash advances are cash loans that you can take out by using your credit card at ATMs or your bank.

While credit card cash advances are easy to access if you have a credit card, these cash advances come with a fee and higher interest rates than the rates associated with using the same card for purchases. Credit card cash advances do not have an interest-free grace period, so the interest starts accruing the minute you get your cash. That’s one reason why the repayment amount can add up quickly.

Before taking out a credit card cash advance ask yourself: can you use your credit card to make the purchase instead or do you need the cash? Be wary of using these cash advances, especially if you cannot pay them back quickly. Advances also use up your available credit, and therefore can negatively affect your credit score.

3. Peer to peer lending (P2P lending)

Peer to peer lending is a way to get a loan from someone else without having to borrow from a financial institution. To get access to a P2P loan, borrowers must use platforms or websites that connect them with lenders. The APR with P2P loans ranges from 6% to 45%.

Some of these P2P platforms are Upstart, Happy Money, and Funding Circle. Shop around and do your research to see which one is the best option for you.

4. Side hustle

Never underestimate the power of small amounts of money adding up over time. Getting a side hustle is a great way to make extra cash.

Some side hustle ideas include driving for Uber or Lift, delivering restaurant meals on DoorDash or UberEats, mowing lawns, lifeguarding, dog sitting and walking, babysitting, helping an entrepreneur as a virtual assistant, supporting a mother as a “mother’s helper” (or babysitter in training), becoming someone’s personal shopper, and organizing someone’s garage or storage unit.

Here are two questions to ask yourself. The first one: what makes you excited? The second question: what are you naturally gifted at?

If you’re great at organizing junk, then you might be the dream helper for someone who has a messy storage unit. You get to work doing what you’re good at and you get paid! That’s a win-win.

To market yourself and get clientele, use your social platforms or go the more traditional route and create flyers and post them at nearby coffee shops, drop them off at your neighbor’s houses, and hang them up in local schools and churches. You could also create a listing for your service on Craigslist.

5. Bad credit personal loans

Even if you have bad credit, there are ways to access loans. You could get an installment loan, which is a loan paid back on a repayment schedule, in equal parts. You can do this when you refinance or consolidate your loans, such as when you have multiple student loans or multiple credit cards with debt.

Two other options are auto title loans and personal loans geared for people with bad credit. These are called “bad credit personal loans” because they are made for people whose credit is either fair or poor. These loans generally have high APR, which means they’re costly to you.

If you’re considering an auto title loan or a bad credit personal loan, double and triple check to see if the APR is monthly or annual. Many times, advertisements for these loans are sneaky and can confuse consumers. For example, a 20% monthly interest rate will result in a 792% APR. Let’s review these two types of loans.

5.a. Auto title loans

With an auto title loan, the appraised value of your car is used as collateral for the loan. If you are the owner of your car and the car is paid in full, you can consider this option. Be warned, however, that the annual APR is generally 300% and will likely not make the loan worth your time. The repayment period is generally 30 days so you have to pay the money back quickly.

If your car is appraised at $5,000, for instance, you would borrow between 25% to 50% of that value. Say you received access to $2,500, and your average annual interest rate for the loan is 300%. You would be paying $7,500 in one year, plus any fees. Even if the repayment term is 30 days, you still have to repay $3,125 within a month or risk repossession of your car. With these hefty interest rates, you are likely better off with an alternative type of loan.

5.b.Bad credit personal loans

Online platforms, such as Upgrade, Upstart, and LendingPoint, require lower credit scores versus other lenders. These loans can range from $1,000 to $50,000. When reviewing pros and cons, we’ll start with the pro: these loans have varied APR, ranging from 6.50% to 36%. A con is that the repayment options are generally not flexible. Check to see if this is the right option for you.

6. Family and friends

Many times, asking family and friends for money can be daunting because you might not want to be a burden or show weakness. Whether you’re getting cash from a credit card or asking for a loan from a family member, you are borrowing money in either case. In one instance, you’re borrowing from a financial institution, and in the other, you are borrowing from a family member or friend. This can be a childhood friend, or a friend from church or place of worship, school, or your community.

When you borrow from family and friends, you will likely not have to pay the high interest rates associated with credit cards. Make sure that you are upfront with your payment intentions: set a time frame, the amount, and communicate those with your family member or friend. That way, your relationship with that person will stay strong and you will both feel at ease with the borrowing and payment terms. You could also sign a piece of paper with the agreed terms and even have a witness sign it as well.

7. Payday alternative loan (PAL)

A payday alternative loan (PAL) is granted to those who are part of a credit union for at least one month. As mentioned earlier, credit unions are non-for-profit organizations that offer financial services, such as loans. These loans come with significantly lower interest rates than payday loans (for instance 7.5% versus 390%) and they are a good option to consider.

The amount of a PAL can range from $200 to $1,000, and the term of the loan must range from 1 to 6 months. Borrowers may receive up to three PALs during a six-month period, as long as the PAL does not overlap with another PAL and is not currently rolled over from a previous payment cycle.

8. Home equity line of credit (HELOC)

A home equity line of credit is a loan borrowed against the appraised value of your home. You receive a set amount of credit and can tap into that over the course of several years. These types of loans have a longer borrowing period than, say, a credit card. Typically, a HELOC has a ten year period, although during the borrowing period, you will need to pay a small amount of interest and a part of the principal each month. With a HELOC, you pay interest only on the money you borrow, not on your line of credit.

When the borrowing period ends, you then need to begin paying back the loan. The repayment period is generally 10 to 20 years. With a HELOC, your home is used as collateral, meaning the lender can seize your home and sell it if the loan is not paid back.

9. 401(k) loan

With a 401(k) loan, you are borrowing money from your 401(k) funds and therefore your credit will not be checked and a lender will not be involved. In other words, a 401(k) is a loan from your own pool of money. Here’s the twist, though: you must repay the money back to your 401(k) within the specified time. You must also pay interest on any unpaid principal of your loan, and therefore are technically paying interest to yourself because the money goes back into the 401(k). Not all employers offer 401(k) loans – check to see whether this is an option with your current employer.

10. Negotiation

Another alternative to a payday loan is to ask your creditors (landlords, credit card financial institutions, etc.) for a grace period while you get your financial bearings and pay back your loans. This may incur fees, but those may be lower than having to pay interest rates. Research ways to negotiate with your creditors if you think this is a good option for you to avoid loans.

Payday loans often cost more than they’re worth

Payday loans are tough to pay back because of the hidden fees and extremely high interest rates. The alternative loans presented here are only some examples that may be more suitable. Remember: you have options. Do your research and remain open to a better way. Ask a trusted financial advisor for guidance, and then take action based on your financial situation and goals.

Your financial situation now does not determine your future. If you are overwhelmed, stay focused and committed to finding a better alternative, ask for guidance and help. You will find a way.

Frequently asked questions (FAQ)

How do payday loans affect your credit?

Failing to repay a payday loan will negatively impact your credit score.

What are some safe alternatives to payday loans?

Borrowing from family and friends or receiving a loan from a credit union are good alternatives to payday loans.

What money app lets you borrow money instantly?

‌Brigit, EarnIn, Empower, Dave, Money Lion, are all apps that let you borrow money instantly. Before borrowing from these money apps, however, make sure to check the interest rate that will be associated with your loan. While you can get fast cash with these apps, you may be paying 200-500% APR or more.