Thousands of Americans have a love-hate relationship with the payday loan. They love the fact that they can get money fast, even with bad credit. They hate the fact that they have to pay high fees for this privilege.
On paper, the payday loan looks absolutely horrible. The loan terms are short, usually 10 to 14 days. Couple that with fees that can range anywhere from $15 to $25 per hundred borrowed, on average, and you get very high interest rates. Rates that can easily be well over 400 percent. Borrowing 700 dollars and paying back 805 dollars doesn’t sound that bad but paying over 400 percent interest does. Even though it is the same thing, the math makes these loans look very bad.
Despite how these loans look though, they do serve a purpose. For those with poor credit, they are often the only source of a short term loan. If someone with bad credit needs $100 to get them by for a few days, they might be the only option. For this reason, the payday loan is not going anywhere unless an alternative can be found.
Payday Loan Alternatives
So what alternatives are out there? Is there anything that can take the place of the hated payday loan or are we stuck with it forever? Take a look at a few current alternatives and judge for yourself.
There are a few phone apps coming out that claim to give people easy and free access to money. The one that you have probably heard of is the Earnin app.
With this application, you enter your work and bank information. Then, when you are at work, the app uses your phone’s GPS to determine when you have been working to see that you are earning money. You can then borrow money against it and there is no charge for the loan, sort of.
The limiting factor for this type of loan is the small amount that you can initially borrow. New borrowers are limited to borrowing just $100. While the app makers say that you can borrow more eventually, there is no clear roadmap as to how to get to the higher limit.
Another issue is the suggested tip. There is no fee but the app asks you to tip when you pay the money back. Suggested tips can approach payday loan levels of effective interest and critics of the app suggest that the app is designed to skirt payday laws. Of course, you do not have to tip but not doing so will eventually limit your use of the app.
Overall, while the app has promise and it may be beneficial to some, the low dollar amounts that can be borrowed make it an incomplete replacement for the payday loan which can get you a loan for 500 dollars and even more in some states.
Money From Friends
Borrowing money from friends and family is a great alternative to a payday loan but it is often not an option. When times are tough, they are often tough for your friends and family as well. This means that money is not available often in an emergency.
If borrowing from friends and family is possible, there are many apps out there that can facilitate it. Apps like Zelle can allow people to send money instantly across the country.
Free loans are always a good choice but chances are that if times are hard for you, they are for your friends as well. This makes borrowing from friends and family a poor alternative for most.
There are other alternatives for those with bad credit who need money, but they are often worse than a payday loan. Because of that, I will not spend much time talking about them.
Title loans are one of these other choices but the fees involved are not much better than payday loan fees. In addition, you run the real risk of losing your vehicle.
Another possible loan choice with bad credit is the pawn loan. Again, the fees and interest are high and you can lose your property. These are also typically very low dollar loans because they are based on a portion of the used value of the property that you pawn.
With bad credit, that is pretty much where it stops as far as loans go. Not a lot of great choices.
As you can tell, there really are not a lot of good choices if you need emergency cash and have very bad credit. Sure, you may be able to get an installment loan and we can even help you get a quote from a lender. There comes a point however where even a bad credit lender can not offer you an installment loan. A payday loan, if legal in your state, may become what you get offered.
Currently, if you have bad credit and want to avoid a payday loan, the only real alternative is the Earnin app. The limitations with this app are huge however. You can only borrow $100 to start and not all jobs will work with it.
Because for most people with bad credit, there is no alternative, the payday loan will keep living on. While costly, it serves a niche.