8 Payday loan alternative to save you from paying high rates

Payday loans are used by over 12 million Americans each year - and they can offer an important injection of cash if you need to borrow money for an emergency.

But these often fast and convenient loans carry very high fees, with typical rates at 400% to 500% APR and many customers left in a worse financial position than when they started.

But in 2021, there are plenty of alternatives available and potential borrowers should consider all their options before going for the quick and easy option of getting a payday loan online or from one of the 23,000 payday stores across America. We speak to loans specialist, Pheabs, to get an overview of the best payday alternatives available today.

  1. Borrow money from family and friends

The most common form of borrowing in the world is from direct family and friend members. After all, it is common for parents to contribute to the purchase of a new home or a new car - and they are likely to be the best people to help you if you face an emergency bill.

Borrowing from close friends and family can be very convenient since they can often give you cash in hand, there are no applications or credit checks and the repayment terms are often very casual and without interest charged. Depending on the relationship, it might be worth having clear repayment terms in place, just to avoid any confrontation or conflict down the line.

  1. Use a credit union

With almost 6,000 credit unions across America, these not-for-profit organisations are designed to help people in their local community, offering short term loans at very low rates and a very lenient lending criteria. Hence, credit unions are well-suited to people with less than perfect credit scores and there are rarely late fees if you are behind on repayments. The only compromise is that funds can take a while to be processed, compared to your online payday lender who is going to be super fast.

  1. Sell things you no longer need

Our homes are full of junk that we no longer use, including books, clothes and CDs that someone is willing to pay good money for. So whether it is selling these at a local yard sale or via a buy-and-sell app, you are potentially sitting on hundreds of dollars, which is the typical amount requested from a payday loan.

Of course, people who apply for payday loans often need them urgently, but you can stay one step ahead of the game and sell unwanted items and put the money aside for a rainy day, so at least you will have $300 or $600 there when your boiler breaks or your car needs repairs.

  1. Use credit cards cleverly

Credit cards can be a very cheap form of credit if used wisely. For instance, some credit card providers offer 0% APR as part of an introductory offer, so if you are able to pay in full on-time each month, you can essentially borrow money with zero interest. I

If you have credit card debts, you should not use payday loans to pay them off, but consider using a balance transfer card to move the debt onto another card and if the new card is 0% interest, this should give you some breathing time to pay off your debts at very low cost.

  1. Use a true payday loan alternative

Today, there are startups that act as true payday alternatives, including apps that offer overdraft facilities with lower rates, and you can simply borrow money as you go, topping up or repaying as you need. This way, you avoid overborrowing or paying too much interest, as you would with a payday loan.

There are also peer to peer loan companies such as Lending Club, Prosper and Fund Ourselves that offer more affordable rates based on your credit score. Your loan requirements are matched with an individual investor who is looking to get a return on investment - and the rates can be very favorable at less than 35% APR.

  1. Form a lending circle

You can look at forming a lending circle with other family members or friends, a concept that is popular for smaller, working communities in Central and South America.

Accordingly, a group of people pool their money together or a small percentage of their monthly income and an individual is allowed to use this when they face an emergency expense or medical bill. It is a very clever, community-based initiative that can offer financial security in the event that you are faced with a high bill. There are also online lending circles where you can participate and with some connected to credit bureaus, they can help to improve your credit score too.

  1. Speak to your creditors about payment plans

If you are looking to use a payday loan to pay off your bills sitting on the kitchen table, you should first speak to your creditors about more flexible repayment plans. Whether it is your cellphone or energy companies, they want to know that your bill will be cleared eventually and if you open a conversation with them, they may be able to assist and help you pay in smaller amounts - and give you some much needed breathing space.

  1. Use financial assistance programs

Depending on your monthly income, you may be eligible for a financial assistance program in your area. Some may help with things like food, rent and other living costs. You should speak to your local library or chamber or commerce to see if you are eligible.

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