There are several payday loan alternatives, including “payday alternative loans” (PALs), secured personal loans, unsecured personal loans with a co-signer, credit cards, and borrowing from friends or family. Pretty much any payday loan alternative that’s legal is a much better choice than a payday loan itself.
Payday loans are predatory, charging outrageously high fees that often equal a 400% APR or higher. They also have an extremely short payoff period (2 - 4 weeks) and take a big chunk out of your next paycheck. The best payday loan alternatives, on the other hand, offer longer (and cheaper) payoff periods.
Payday loan alternatives:
- Payday alternative loan (PAL): A PAL is a type of loan offered by some federal credit unions to give short-term borrowers an option without predatory expenses. PALs typically provide $200 to $1,000 in funding to be repaid over 1 to 6 months. By law, the APR cannot exceed 28%, and the loan’s processing fee cannot exceed $20. PALs do not require hard credit inquiries, either, according to Experian.
- Short-term bank loan: Some banks have started offering small, short-term loans that are similar to PALs but tend to be more expensive. For example, U.S. Bank’s Simple Loan of up to $1,000 for 3 months has an APR of nearly 71%. That’s still much cheaper than payday loans, though.
- Secured personal loan: It’s relatively easy for someone with bad credit to get a secured personal loan because there’s little risk on the lender’s part. The loan requires collateral (such as savings, a car, real estate or other valuables), which the lender can keep if the borrower is unable to pay the loan back.
- Unsecured personal loan with cosigner: Some lenders, such as Citizens Bank and TD Bank, will allow you to apply for a personal loan with a cosigner. A co-signer takes responsibility for paying back the loan if you are not able to. Because of this, the lender will give more weight to the co-signer’s credit score than yours. Personal loans can let you borrow anywhere from $1,000 to $100,000 with APRs of 4% - 36%.
- Credit card: Payday loans are for small amounts, which means it might just be possible to charge what you owe to a credit card. Even though the average new credit card offer has an APR of over 19%, that’s still far cheaper than a payday loan.
- Friends and family: The people closest to you may be willing to give you a loan with a low APR, even 0%, along with a flexible payoff timeline. Just be sure to draw up a written agreement and sign it before any money changes hands.
The best payday loan alternative is likely borrowing from friends and family. But that option may not always be available. Any one of the major payday loan alternatives is far better than getting a payday loan, though.
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