A payday loan may seem like a very attractive option if you need money. After all, it’s quick money with no requirement but to show pay stubs from your employer. But, is it really a good idea?
The truth is it may not be such a good choice. A payday loan, also called cash advance loan or check advance loan, is a type of short-term borrowing where a lender will extend high-interest credit, based on a borrower’s income and credit profile. It is typically a portion of a borrower’s next paycheck.
Payday loans charge borrowers high levels of interest and do not require any collateral, making them a type of unsecured personal loan. If you're considering a payday loan, you may want to first take a look at safer personal loan alternatives.
1. Get Paid Early
The easiest option may be to ask your employer if you can get an advance on your paycheck. It would be like asking for a payday loan but without the interests.
2. Set up a Payment Plan with the Company
If you’re having trouble making payments, before you get a payday loan, see if you can set up a payment plan with the company you owe money to. It can be awkward to talk to the company, but this is a better alternative than missing a payment.
3. Borrow Money from Family Members or Friends
This isn’t an option for everyone, but if you have family or friends that can loan you money, consider borrowing from them. They could loan you some money, interest-free.
If you do this, be clear on the amount and the timeframe in which you’ll pay them back and stick to it. This is an option with no strings attached, but you don’t want it to hurt your relationship.
4. Take Out a Personal Loan from a Bank or Credit Union
If you have debts to pay back or need to cover your basic expenses, you can consider taking out a personal loan from a bank or credit union. If you have good credit, many times, a bank or credit union will offer a much lower rate than a payday loan lender.
5. Use Credit Card
Getting into a credit card debt is never a good idea, but if you’re thinking of going to a payday lender, your credit card is likely a better option. Although many credit card interest rates can be around 17 percent and up, this is still better than what payday loans offer.
6. Use a Line of Credit
Another option is to use a line of credit. A line of credit is different from a loan in that there’s a set amount available that you can draw from. You only pay interest once you borrow the money.