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7 Payday Loan Alternatives

7 Payday Loan Alternatives
Jason Steele
Jason SteeleUpdated March 13, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
A payday loan might seem like a viable option when you need money quickly. But payday loans come with risks plus high interest rates and fees. And their short repayment term can make these loans tough to pay off.  Fortunately, there are a number of payday loan alternatives you can consider. Read on to find out more about payday loans, the possible risks involved, and other options that could help you get the money you need.

Risks of Payday Loans

It’s important to understand exactly how payday loans work. Payday loans are typically small — around $500 or less — and are usually a portion of your paycheck. A payday loan is due when you get your next paycheck, which could be within two weeks. You might even be required to write a postdated check for the amount due or give the lender approval to electronically take the funds from your checking account when the loan is due. Payday loans usually have high interest rates and fees. Generally, you could be charged $10 to $30 for every $100 you borrow with a payday loan. If you can’t repay the loan within the short amount of time allotted, you could fall even further into debt. This can make getting out of a payday loan difficult. Payday loan lenders generally don’t look at your credit history, credit score, or income to determine whether you are eligible for a loan. Typically, all you need to do is show them your ID and give them your payment information. While it can be easier to qualify for a payday loan than other types of loans, it may be difficult to repay them, which could lead you to borrow more money and incur additional fees. Many payday loan lenders are typically considered predatory lenders, and states have different regulations regarding these loans.

Alternatives to Payday Loans

Instead of taking out a payday loan, which could be risky, you may want to consider one of these payday loan alternatives instead.

1. Paycheck Advance 

When you need money, your employer may be able to give you an advance on your paycheck. With this method, you receive money from your next paycheck, which is then deducted from that check during your next pay period. Not all companies offer this option, but it may be worth asking your employer to see if it’s something they will do.

2. Personal Loans

One of the payday alternative loans is a personal loan. If you’re wondering how payday loans vs personal loans compare, there are some key differences. Personal loans are typically offered by banks, credit unions, or online lenders, and they can range from around $1,000 to $50,000 or higher. Personal loans tend to offer better interest rates and longer repayment terms than payday loans. You will need to qualify for a personal loan. While the specific personal loan requirements may vary from lender to lender, when you apply for a personal loan, a lender will typically check such factors as your credit score, credit history, and income. Some lenders let you prequalify for a personal loan, which can give you a sense of the interest rate and terms you might get before you officially apply.If you have bad credit, you may want to look into bad credit loans. These are unsecured personal loans that don’t require collateral, and they may be available to applicants whose credit might not be in the best shape. 

3. Payment Plan

If you need help with paying your bills, ask the companies in question if they could help you set up a payment plan. This type of plan could help break up your payments into smaller increments, which may be easier for you to repay. Some companies offer hardship programs for this purpose, and they may even temporarily defer your payments to help give you time to come up with the funds.

4. Credit Cards

Credit cards are another one of the alternatives to payday loans you may want to explore.  Interest rates on credit cards are usually lower than interest rates on payday loans. You might even be able to get a credit card with 0% introductory APR. In this case, you use the card for expenses without having to pay interest during a specified introductory period. As long as you pay off the balance before that period ends, you won’t owe interest. However, be aware that credit cards with 0% introductory APRs generally have minimum credit score requirements you need to meet in order to qualify. 

5. Borrow From Family or Friends

If you have relatives who could loan you money, you might want to consider a family loan. This way, you could potentially save on high interest rates or fees. If you choose this option, be sure to put all the details in writing, including the repayment schedule and due dates. And make sure you can repay the money in a timely manner. 

6. Home Equity Line of Credit

A home equity line of credit (HELOC) allows you to borrow against your home’s equity up to an approved limit. Instead of receiving a lump sum, you can borrow HELOC funds as needed during what’s called the draw period, which typically lasts up to 10 years. When the draw period ends, the repayment period begins, which can be as many as 30 years. However, if you fail to make payments on a HELOC, the lender could foreclose on your house.So consider this option carefully before proceeding.

7. Credit Counseling

Some nonprofit organizations offer credit counseling and debt assistance. These programs can help you create a debt management plan to pay what you owe. They can also provide educational resources, tips, and tools to help you manage your money. Some credit counselors may work directly with your creditors to negotiate a lower interest rate on what you owe, extend your repayment terms, or waive fees. Credit counseling services are often free or require just a small fee.Be sure to look for a certified credit counselor. One place to start is with your local consumer protection agency, which may offer referrals.

Tips for Using Loans Wisely

Whenever you are considering taking out a loan, make sure you will be able to repay the amount you’re borrowing plus interest and any fees within the specified time frame. Work with a reputable lender, and shop around for the best rates and terms you can get. Make your payments on time and consistently until the loan is paid off.And think carefully about the type of loan you take out. While a payday loan might be tempting when you need money quickly, it may be challenging to repay, and you could end up even further in debt. Weigh all the pros and cons before you borrow money to make the best choice for you. 

Personal Loans With Lantern

Because payday loans can be risky, a personal loan could be a smart option to explore. You can compare personal loan rates and terms to help find what suits your needs, and Lantern can help. In our online marketplace you’ll get offers from multiple lenders at once, making the process easy and convenient.

Frequently Asked Questions

What can I do instead of a payday loan?
Are payday loans a good idea?
What is the purpose of a payday loan?
Photo credit: iStock/fizkes

About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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