What Is A Payday Loan?
A payday loan is, as the name implies, a short term loan designed to get you through until your next payday. A lender gives you cash and then you repay the loan, usually automatically, from your bank account on your next payday.
These loans are convenient and fast to process but they have a lot of problems, which is why they are banned in many states. Combine high fees with short loan terms and you get an APR which usually exceeds 400 percent and can often exceed 800 percent.
A payday loan truly is a loan of last resorts. You should only use them if you have no other options. But what other options do you have? You might have more than you think. Panic can cloud your judgement and you might not be aware of some money sources that are right in front of you.
Check Out Your Alternatives
Take a look at the top 7 payday loan alternatives and see if one of them works for you.
- Defer other bills.
- Sell some property.
- Get a credit card advance.
- Borrow from your 401K.
- Obtain a pawnshop loan.
- Borrow from a relative.
- Ask for a paycheck advance.
1) Defer Other Bills
The first place you can look when seeking a payday loan alternative is a deferral. This is a great way to free up some money in your budget, money that can be used to handle an emergency instead of taking out a loan.
Creditors do not want you to get behind. They know that if you get even one month behind, the chances of you defaulting completely increase significantly. This is why many lenders will allow you to defer a payment to the end o f your loan.
To take advantage of a payment deferment, you need to contact your creditor by phone and ask for it. It is best to have a good reason for the deferment and you will have better odds of being approved for one if you ask for it BEFORE you get behind. If you wait until you get behind, your account may end up in collections and then there may be nothing they can do.
So what kind of creditor will offer a deferral? Just about any creditor that you have an installment loan with will be able to defer a payment to the end of the term. The most typical lender is an auto loan lender but other lenders such as student loan providers and those offering retail installment deals may be able to help you.
Credit card companies are unlikely to offer to defer a payment but you maybe able to ask to be put on a “hardship plan”. That could allow you to pay less than normal to free up some cash for your emergency.
2) Sell Some Property
If you want to avoid a payday loan, selling property should be one of the top alternatives on your list. It could allow you to avoid a loan completely while possibly clearing out some of the clutter in your home.
You might not think you have anything that you can part with, but take a close look around. Anything in your home that you have not used for 6 months is fair game. It could be some old video games, a purse or even some small appliances. These things have value to someone else and you could make all or at least part of the money that you need by getting rid of them.
Once you have an idea of what you can sell, look for the most appropriate outlet. Some things sell better at different place. Here are the most popular choices.
Selling on Craigslist is easy if you have the right item. Things like furniture, tools and large appliances do well here. Put an old couch up for sale here and chances are that it will be gone in a matter of hours.
- Facebook Marketplace
This is a good place to network with those in the community. Items like kids toys and small electronics do well on Facebook.
This is the place to sell higher end electronics like iPads and laptops. You do not have to list your item on a slow auction listing either. Price it competitively as a “buy it now” listing and it can be sold in hours.
Apps like Letgo and 5mile can be considered but they do not seem to have the same reach as the others. Still, you never know and it is free to list so it is worth a shot. Just do not pay for any of the listing upgrades.
3) Get A Credit Card Advance
While not ideal, a credit card advance may be a much better deal for you than a payday loan. Even if they default to the maximum 29.9 percent interest, you would still benefit over the 400 percent interest that you could wind up paying with a payday loan.
Taking out a credit card advance would also allow you to pay back the money much slower which can let you get back on your feet. Payday loans must be paid back on your next payday, typically in just 7 to 10 days.
But what if your credit card is maxed out? If your card is maxed out and you need money, call your card issuer and ask for a credit limit increase. If you are on good terms with them, chances are good that they will grant it.
If you decide to take a credit card advance as a payday loan alternative, you can get cash at just about any bank with it. If you know your pin number, you can even get cash directly from an ATM.
4) Borrow From Your 401K
Your 401K is not just for retirement. You can also use it as a payday loan alternative by borrowing from it. You are limited in how much you can borrow, but it is much more than you can get with a payday loan. You can get 10000 dollars or up to 50 percent of your balance, whichever is more. Try doing that with a payday loan.
The catch is that you must repay the loan with interest. The plus is that you have up to 5 years to do so and any interest you pay goes back into your account. Do keep in mind that there could be tax implications with a 401K advance. If you do not pay the loan back in time, or leave your employer before the loan is repaid, you could face tax penalties.
5) Obtain A Pawnshop Loan
Don’t have property that you can sell but instead have something that you can do without for a bit? A pawnshop loan might be just the thing.
When you pawn an item, you are simply giving the pawnshop collateral that they hold onto. Once you pay back the loan, you get the item back.
Pawn loans are best used for small dollar loans such when you need 100 or need 200 dollars. This is because the shop is only going to give you a portion of the item you pawns value in cash. To get a lot of money, you would have something very valuable to pawn.
Do keep in mind that pawn loans are still high risk loans and lenders charge high fees and/or interest. Not only will you pay interest for your loan, you will also pay document and storage fees. While not as expensive as a payday loan, this will still be an expensive loan.
6) Borrow From A Friend/Relative
Never anyone’s favorite payday loan alternative but it sure is an inexpensive one. Borrowing from someone that you know has all of the benefits of a loan without the negatives, namely no fees and/or interest.
The downside to a friendly loan is that things can get unfriendly very quickly. People work hard for their money and they have a lot of emotions tied into it. If they feel that someone is taking advantage of them, things can turn sour fast.
If you decide to borrow a few bucks from a friend there is one thing that you should do. You should treat it just like any other loan. Write out a loan contract, keep receipts and make the payments when they are due. As long as you treat it seriously and everyone knows just what is expected, this kind of loan can work.
7) Ask For An Advance From Work
Most employees work on a delayed pay system. You typically work for two weeks and then get paid about a week after that. This means that you have probably already accrued some of the money that is going to your next paycheck.
Why not ask your employer to advance you some of this money as an alternative to a payday loan. It is of little risk to them because you have already earned the money. All it is will be a little paperwork and most employers are willing to do it in order to keep their employees happy.
The downside to this is that you could come off as being a little irresponsible. This is particularly true if you are in a white collar field.
If you decide to pursue this way to get the money you need, be sure to have a good reason for needing the money. Also, do not go to this well too often or you could be putting future advancement in jeopardy.