Most Americans are working hard, but still living paycheck to paycheck. In fact, 78% of them fall into this category.
It isn’t about making a lot of money either. Of those making $100,000, about 1 in 10 are living from paycheck to paycheck.
All it takes is one unexpected event to throw you in financial turmoil. When unexpected bills pop up, what do you do?
Some may tell you to turn to a payday loan online. This isn’t your only option and may not be the best solution though. We have a few payday loan alternatives for you to consider.
What Is a Payday Loan?
Before we get into the alternatives, let’s review what a payday loan actually is. The simple answer is, payday loans no credit check are a small amount of money that you borrow and repay in a short amount of time.
The most common loan term for this type of loan is two weeks. The idea is that this money will help tide you over from one paycheck to the next.
There are very few requirements for getting a payday loan. This means that almost anyone will be approved for one.
Bad or No Credit Approval
For those who have bad or no credit and are applying for a bad credit loan, the key piece of information the lender is looking for is your ability to repay the loan. So, they will look to see if you have a bank account and source of income.
Then on the date that your loan is due, the lender will credit your account for the total amount you owe plus interest and fees. This is how the lender protects itself from borrowers not paying.
Why You Wouldn’t Use a Payday Loan
A payday loan can be an expensive short term solution. While each state has specific rules, you can expect to pay somewhere between $10 and $30 in interest for every $100 you borrow.
There is also a short repayment term with payday loans no credit check instant cash. As the name implies, you’ll have two weeks to pay the loan back. As you should receive a paycheck in that amount of time, that would enable you to pay your loan back.
You also need to keep in mind that this interest charge is just for the first two weeks of the loan. If you don’t pay it back and let the loan roll over there will be more fees and interest added on.
This is the beginning of a very expensive cycle. If you couldn’t pay the loan back on the initial due date, how are you ever going to pay back the increasing total in the weeks to come?
Don’t think this will happen to you? Consider this: out of every 5 payday loans, 4 of them are renewed or rolled over after 14 days. That means that only 15% of borrowers successfully repay the total of their loan in the first 14 days.
Alternatives to a Payday Loan
When you decide to consider alternatives to a payday loan, you need to think about what type of expenses you are facing. You also need to think about how much debt you are already in. Finally, you should consider your credit score.
Your Emergency Fund
The smartest thing you can do is start building an emergency fund for yourself. You can then use this fund when unexpected expenses come up such as car repairs or medical bills.
You could also use it for regular expenses such as rent being due. Whatever the reason, having your own emergency fund means you don’t have to depend on anyone else when you hit the financial roadblocks of life.
Don’t feel pressure to immediately have a huge emergency fund. Start by saving a small amount each week. This could be $10-$20.
Work your way up until you have one month of expenses. Then make your next goal to have two months.
Your end goal should be to have 3 to 6 months’ worth of expenses saved up. This means that everyone’s emergency fund will be a different amount since we all have different monthly expenses.
Having this amount saved means you’ll be in good shape should you not be able to work for an extended period of time. It will also save you should you be feeling the effects of the government shut down and not receiving a paycheck.
Apply for a Personal Loan
If you need a larger amount of money and have decent credit, look into a personal loan online. You can borrow anywhere from $500 to $35,000 depending on your creditworthiness and the lender. The threshold for approval is higher for a personal loan than for a payday loan.
The advantage though is that you can borrow more and the interest rate tends to be lower. There is also a level of convenience with a personal loan. Many allow you to apply online and deposit money directly into your bank account.
You can find personal loans that cater to those with bad credit, just be prepared for the terms to not be as favorable. But you can benefit from the long term payments as they will help you build your credit score.
This might be an option if you have a credit card that isn’t maxed out. It is likely that the interest rate on your credit card won’t be as high as a payday loan.
Plus you’ll have a longer period of time to pay back the loan. We mentioned earlier that you need to pay back your payday loan in two weeks or less. While your credit card is billed monthly, giving you time to pay.
You could also consider applying for a new credit card. This could mean you’ll earn rewards for your initial use of the card. Look for a card that offers a 0% Introductory APR rate.
Typically these into periods are anywhere from a year to 18 months. This means that you’ll have a long time to pay off the card interest-free. Just be careful with this strategy, you don’t want to put yourself into further debt.
The advantage to using a credit card is that you can build your credit score. First by making on-time payments. Second by having an account that ages and becomes long term.
When you have accounts for long periods of time, lenders view you as stable. So take your credit card, use it for the emergency, and then pay it off. Put the card away and only use it again when the next emergency comes along.
Negotiate with Your Creditor
If you you took out a personal loan no credit check with a particular creditor, try calling them up and having a chat. Explain to them that you cannot pay at the moment and you need an extension.
Most creditors are willing to work with you. They’d rather work with you and get paid at least a portion of what you owe than nothing at all.
They may agree to defer your payments for a month or two. Or they may agree to a new repayment plan. Finally, they may negotiate a lump sum payoff that is less than the amount you owe.
Depending on your debt, you may be able to refinance. This where you pay off your first loan with a second loan. In the process, you will get a better interest rate.
Borrow from Family or Friends
If you are going to ask friends and family for an installment loan, be absolutely sure that you can pay them back. You don’t want to risk your relationships with those you care about.
Borrowing money this way will help you avoid the potential damage to your credit and increased debt caused by high-interest rates.
Whatever agreement you come to, make sure that it is in writing. That way everyone is on the same page. Include how much you are borrowing and how you intend to pay it back.
Community or Charitable Help
Sometimes the help you need is right there waiting for you. All you need to do is ask for it. There are many churches and other community organizations that have programs in place to provide assistance.
One program that may help you are the SNAP and WIC programs. Both will help you buy groceries for your family each month. If you can save money on this expense you can use the cash towards something else.
There is also the Low Income Home Energy Assistance Program. This government program will help you lower your cooling and heating costs for your home.
Have a Side Hustle
If you find yourself needing to pay a large amount of debt, or you are consistently experiencing financial hardship, it might be time for a side hustle. This could mean taking on a second job.
Having a second source of income can help you pay off debt and create that emergency fund we mentioned. If you don’t want a second job, you could always ask for extra hours at work.
Another option is to start looking through your stuff for things to sell. You’d be surprised the extra cash you can make from the items you no longer use. You could sell old shoes, purses, or clothing. Or you could sell old furniture, toys, books, and kitchen gadgets.
Do you have a skill or talent? Have you considered monetizing it? This lets you enjoy what you’re doing while you make money.
Get Professional Advice
If you are struggling to get your finances in order, you may need the advice of a professional to help you get on track. A professional financial counselor will analyze your current situation.
They will then create a plan for you to move forward with. The plan will prioritize your debt and help you cut unnecessary spending.
Think Hard Before You Choose These Alternatives
There are a few payday loan alternatives that are available to you that you may not want to choose. We are going to go over them so you are fully informed of all of your options, both the good and the bad.
Someone may offer you a title loan as an alternative. This is a loan that uses your vehicle as collateral for the loan.
But the problem with this is that you are putting your car on the line. Imagine the struggle and predicament you’ll be in if your car gets repossessed.
Installment Payday Loan
The other loan you need to be careful of is a payday loan that is in installments. Sure, the installments mean that you can get a larger payday loan.
But it also means that you risk owing large amounts of money thanks to high interest rates.
Home Equity Loan
If you own your home you may be able to take out a loan based on the equity you have in your home. The equity in your home is the value in your home above what you owe on it. Because your home is the collateral, your bad credit score won’t be as influential.
The problem with this type of loan is that your home is now collateral. That means that if you default on this loan, your home is now at risk. This isn’t any better than putting your car at risk with the title loan.
What Payday Loan Alternatives Are Right for You?
If you are feeling the financial pinch there are plenty of payday loan alternatives. Before you resort to a payday loan, try one of these options first.
Whatever option you choose should fit your current financial situation and need. Remember, consider how much money you need, how long it will take you to pay it off, and your credit score.
You may even discover a consistent alternative income source such as a side hustle. This will help you prevent getting into another financially tough situation.
Check out our blog for more financial advice and information. Here are some other articles you might find interesting:
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How to find the best bad credit personal loans guaranteed approval
How to raise your credit score in 30 days
The complete guide to same day payday loan interest rates