Each year, 12 million Americans turn to payday loans to manage their financial burdens. The widespread availability of these loans and their lax requirements might seem too good to pass up. But before you start looking for a payday loan application, pay careful attention to the potential downsides:
- High-interest rates – in some states, they exceed 500% annual interest.
- Lenders can attempt to withdraw funds from your bank account.
- Short repayment terms that quickly result in rollovers.
Many borrowers have learned a painful lesson: payday loans can lead to a risky cycle of debt that is hard to shake.
Here’s the good news though. You can find plenty of payday loan alternatives that come with lower interest rates. Here are a few ways to remedy your financial emergencies without falling into a debt trap.
1. Ask Someone You Know
If you don’t mind a potentially uncomfortable conversation, borrowing money from your friends or family members can be a smart alternative to payday loans. Of course, to do this, you first need to know someone who is in a position to lend you the cash.
2. Establish Your Terms
Worried about straining your relationship with a financial disagreement? Be sure to make a concrete set of rules when you borrow money from friends and family. That way, you can avoid any arguments over factors like repayment deadlines.
Put it all in writing, as you would do with any other type of loan. Remember to clearly communicate any changes you want to make to your agreement. And never feel tempted to slack off on repayment just because you know the person.
3. Take Out a Personal Loan
Not everyone has a wealthy friend to ask for a loan. But most people are familiar with a financial institution that might be able to help them out. Inquire at your bank or a Credit Union about how to take out a personal loan.
If you have the option, try your luck with a small, local institution first. You might find that they are more willing to negotiate down to affordable rates rather than National banks.
4. Ask Your Boss For a Paycheck Advance
Talk to your boss or supervisor about the possibility of getting an advance on your next paycheck. Human resources might also be able to help you.
As is the case with asking a friend or family member for a loan, this option can be uncomfortable for some people. However, the result could potentially spare you the need to apply for a risky payday loan.
5. Check for Availability
Keep in mind that not every business can help you out. And even if your company can offer you a paycheck advance, you might be expected to explain your financial emergency. If you’re comfortable with that possibility, it can’t hurt to try this method.
6. Use a Credit Card
One great payday loan alternative might already be in your wallet. Use your credit card to cover the emergency expenses. The interest rates will likely be much lower than a payday loan.
Don’t have a card? Review your credit score and then search around for card options. The better your credit scoring is, the better deals you will be able to find.
7. 401(k) Loans
You’ve worked hard for your retirement account, so don’t take this final option lightly. If you decide to borrow against your 401(k) account carefully review the terms and conditions. You might encounter limits on how much you can access. And if you don’t repay the loan in a certain time frame, you’ll likely have to pay taxes on the amount borrowed.
Just like with a paycheck advance, your employer might not offer this as an option. However, most 401(k)s will allow this, so don’t hesitate to ask.
Build Your Emergency Account
While these five options can pull you out of a tight spot, you’ll want to avoid ending up in the same financial risky situation in the future. Start building up an emergency account as soon as you can. This account will help you avoid having to rely on payday loans or any of the alternatives in the future.