Best Alternatives to a Payday LoanDebt Management , Personal Finance
May 17, 2021
12 mins read
When Americans find themselves in extreme financial distress, as millions are today, payday loans might seem like the only option for relief. But the truth is, they’re unfair, costly, and take advantage of people who are most vulnerable.
Payday loans are often issued to people who have bad credit, no credit, or are without savings. They are generally short-term loans, typically only a couple of weeks, and come with high finance charges.
You’ll often have to write them a post-dated check that will be automatically deposited when the loan is due. If you’re unable to pay the loan back on time or your check bounces, you will be charged even more, and the loan could potentially go into default and damage your credit score. Our advice is to avoid them at all costs.
Here are 6 alternatives to Payday Loans
1. Cushion App
Billions of dollars are wasted annually on fees and credit card interest payments. Cushion was born out of a need to right a wrong: costly and unnecessary bank charges and credit card fees. These seemingly innocuous fees can quickly add up to hundreds of dollars if left unchecked. Cushion was launched to help the regular people fight back and reclaim money that is rightfully theirs. You can expect to get refunds on commonly-paid fees like, wire transfer fees, monthly service fees, foreign transaction fees, account maintenance fees, minimum balance fees, ATM fees, credit card interest charges, late fees, and overdraft fees
To get started, all you need to do is connect your accounts to the app and they’ll take it from there. According to their website, they have refunded over $9 million dollars in fees. If you can get a couple of hundred dollars in fees refunded, that’s a couple of hundred dollars in high-interest loans you don’t need to take out. This isn’t just a great alternative for a Payday loan, with all the extra cash that you can save, it’s a no-brainer way to better your financial situation.
2. Earnin App
Earnin is a popular provider and helps you gain access to your money sooner. Their tagline is, “You worked today, so get paid today.” Here’s how they work: Earnin helps you tap into a portion (up to $500) of your current paycheck before payday. The amount is just deducted from your next check. A key feature of this is that there are no interest rates or fees. The caveat to this is that they will highly encourage you to tip them what you think is fair.
To qualify, you need two things. First, you’ll need to have at least 50% of your paychecks placed into a bank checking account by direct deposit. Second, you’ll need to get paid on a regular schedule (ie. weekly, bi-weekly, monthly) and work in a fixed location. Unfortunately, if you are a freelancer, this will not work for you at this time.
Disclaimer: It is very easy to become dependent on apps like this. Earnin can be a great financial tool to help deal with emergency expenses, but you should never fall into the habit of using apps like Earnin to spend money faster on unnecessary purchases.
3. Get Paid Sooner
An excellent alternative to payday loans is the emerging industry of apps providing early access to earned wages. Some companies in this space include Empower, Wealthfront, Chime, and Axos. They all have their own unique set of features, but the core idea is that they’ll let you access your paycheck up to two days in advance, with NO fees.
This alternative industry is a powerful tool that you can use and save you hundreds and maybe thousands of dollars compared to a payday loan. Plan ahead as much as your situation permits and if your financial emergency does not need to be paid immediately, then these are great websites to explore. As always, read reviews, check out their websites, and understand which is the better platform for you to use.
4. Get a Cash Advance
We get it, sometimes your money emergency can’t wait. Don’t worry, we have you top of mind as well. A cash advance is a short-term loan on your credit card account, it’s a simple transaction but careful cash advances also have a downside. However, they are still a better option over a payday loan. And like we said, sometimes you can’t avoid that emergency need for cash. If you’re going to use a cash advance, do your research and align yourself with the best possible comeback plan.
You can get cash advances with apps like Dave, Brigit, Flexwage, and Moneylion. These apps will advance your money, usually around $200-$300, at no cost and they won’t even ask you for tips. One of the standouts here is Flexwage, which will actually issue you a reloadable debit card which makes it a great solution for those who do not use banks or do not have direct deposit.
5. Set Up a Fundraiser for Yourself
Another alternative to a payday loan is setting up a fundraiser on apps like GoFundMe or Indiegogo. Setting up fundraisers can sometimes be embarrassing or make us feel weird because we are not only sharing aspects of our personal finances or current need for emergency cash.
However, you can share as much or as little about your financial situation on the fundraiser description as you would like. It’s a great tool that allows you to bring in your friends, family, and social network that know you and want to help you.
You will also learn that sometimes even strangers on these platforms genuinely want to help you! To thank those who have helped you in your season of need you can keep them updated on your progress, showing them that their donations helped you out, they’ll feel good, and even send out a thank you card or message.
Most people want to help others out and taking some money from someone able to and willing to share with you is a far better option than going into a never-ending cycle of debt with payday loans.
6. Ask if Payment Plans are Available
Finally, instead of a payday loan, you can ask if there is a payment plan available for your exact situation. You may find that there is no need to go through all of the work of setting up an app. Payment plans are not always accessible for all emergency financial needs. Some common situations where there should be a payment plan are with medical bills, dental bills, and car repairs.
Most hospitals and dentists are happy to do payment plans and some even offer their own free or low-interest lines of credit that you can use which will also help build your credit as you pay it back. Car shops may be willing to work out a deal with you on a payment plan if you leave some type of collateral with them until the bill is paid. Sometimes just asking for help can go a long way.
7. Use A Peer-To-Peer Loan
Everyone’s financial situation and the resources that are available to them are unique to the individual. You may need more cash than the above alternatives can provide you or perhaps none of the above options work for you.
Here’s a bonus alternative, you can try to get a personal loan from a peer-to-peer or online lender. There are a lot of loan platforms out there like lendingtree, LendingClub, Prosper, Upstart, Best Egg, OneMain Financial… the list goes on and on.
Online lenders typically have lower credit score requirements than regular banks because of the competition between the sites, that’s great news for you. Do comparative research between the companies and see where you can get your best offer and in the long run that will help you save more money.
For example, OneMain Financial does not have a minimum credit score requirement and we compare that to Upstart where it is just 580. The downfall, you will pay about 30% more in interest if your score is bad, but the loan can be paid back over the course of multiple years instead of a couple of weeks. This is a better situation and less strain on your wallet so you don’t need to go back for another loan.
If you have no other choice, only apply for loans you can afford to pay back and with the lowest cost. Be sure to look through all offers carefully – fees, interest rates, and if there are collateral requirements. Remember, applying for loans can negatively affect your credit score so be cautious about how and when you do this.
And when you’re back on your feet…
Once you get back on solid footing, start an emergency savings fund to help you weather future storms — and work towards setting aside three to six months’ worth of living expenses. While this may seem difficult to do, there are many ways you can budget your money and cut expenses to help you achieve your goals. Fortunately, there are many resources out there to help you find ways to cut spending and get your savings plan started, such as:
7 Unusual Ways to Build Credit – RentReporters
10 Ways to Get Your Finances Under Control – RentReporters
How to create a budget – The Motley Fool
Increase Savings and Rebuild your Emergency Fund – Smart About Money
How to Save Money – 10 Easy Tips – BankRate.com