Payday loans can be a convenient solution for managing finances when one is short of cash and waiting for the next paycheck. But the issue with these loans is that lenders impose hefty interest rates. For example, a 14-day payday loan of $100 can come with a $15 fee, which roughly translates to an APR of 400%. Fortunately, there are safer alternatives to payday loans that one can rely on for emergency transactions.
Personal Loans
For those who have a steady income and a decent credit score, a personal loan stands out as a safe borrowing option in times of need. These loans allow one to borrow a lump sum of money at once and repay it over a preset period of time. While several financial institutions and private lenders offer personal loans, banks, and credit unions are safer and more responsible lending options. The main reason why personal loans are a better form of credit than payday loans is their interest rates, which start as low as around 7%. The final interest rate, however, will depend on one’s creditworthiness and the repayment term.
Individuals with no credit history or a poor credit score (below 580) can still apply for a personal loan, commonly referred to as a “bad credit” personal loan. But it’s important to note that the interest rates for these loans may be comparatively higher, potentially reaching up to 36%. Despite this, the rates are still more favorable than those associated with payday loans, making personal loans a much better option overall.
Payday Alternative Loan (PAL)
Credit unions that are registered with the National Credit Union Administration offer a short-term loan called a Payday Alternative Loan. As the name suggests, these loans are primarily designed to help individuals avoid payday loan traps while still providing access to quick money. However, since PALs are issued by credit unions, only union members can avail those loans.
To apply for a Payday Alternative Loan, one would be required to pay an application fee of around $20. Also, the amount that one can borrow typically ranges between $200 and $1000, with interest rates being up to 28%.
Assistance From Family and Friends
When looking for non-predatory lending sources for urgent cash needs, one of the best options is to approach trusted friends and family members. Requesting a small loan from a known person can help avoid interest charges altogether or keep them minimal. While it may feel awkward to ask at first, borrowing from someone close can offer more flexible repayment terms, making it a safer alternative to payday loans. However, to prevent any strain on the relationship, it is one’s responsibility to repay the amount within the decided timeframe.
Paycheck Advance
One of the best emergency cash solutions that does not require one to take any loans is seeking a paycheck advance from one’s employer. This option allows employees to access a portion of their upcoming paycheck ahead of the scheduled payday. And, in most cases, employers issue advances without interest or fees. While not all employers offer this benefit, those that do may process it through HR or payroll departments. A paycheck advance is a convenient and low-risk solution to bridge a temporary cash shortage without falling into a debt cycle.
Charities and Non-Profit Organizations
Individuals can also consider approaching local non-profit organizations, community credit programs, and charities that help people with urgent cash needs. If one’s not seeking cash, one can also find non-profit bodies, or local pantries that can help with the month’s groceries, thereby freeing up funds for other urgent expenses.
Ask for Extensions on Bill Payments
Another way to get financial help without payday loans or any cash assistance is by asking creditors for temporary payment relief. Most creditors would be willing to extend the repayment period or make a revised payment plan that gives one some extra time to get financially stable. This is because creditors would much rather receive a slightly delayed payment than have to close an account due to unpaid dues. Plus, this approach can help avoid penalties, maintain credit standing, and reduce immediate financial pressure. This option can be especially helpful to individuals with a good credit history, who’ve never missed a payment date. Not only creditors but even certain vendors would agree to such revised payment plans. One can consider speaking to their utility company, telecommunications providers, and even one’s landlord to seek temporary financial relief.
Overdraft Protection
An overdraft is when one’s bank balance steps into a negative stream due to the transactions exceeding the available funds. An overdraft protection is a service that can cover these transactions to prevent bounced checks or declined payments. Many banks offer these services, especially to their long-standing and trustworthy customers. Banks do, however, offer these services only up to a certain range of funds—usually between $250 and $5,000. Moreover, most banks do not even levy overdraft fees. But those who do can charge customers around $5 every time an overdraft is used. Some banks may also levy an interest rate of around 20%, which may be high but is still better than the charges of payday loans.
