Borrowers who have had credit problems in the past or who need cash quickly may want to take advantage of payday loans. These products, often sold as emergency loans, may seem convenient, but they are a form of predatory lending. That high interest rate often traps borrowers in a cycle of debt for years. Always consider safer and cheaper payday loan alternatives before relying on these products or other short-term, high-value financing.
There are various places you can find bad credit loans that are safer and easier to repay than payday loans. Many lenders can deposit funds into your account on the same day or the next day, depending on the timing of your application. However, as with any fixed income product, there are still drawbacks to consider. Before choosing which financial product to use, check your situation and weigh your options.
personal loan
Ideal for people with good credit (or a co-signer) and a stable income.
Personal loans can be used for almost anything, including buying groceries or paying bills if you’re in a financial pinch. If your credit score is around 700, you can qualify for around 12% annual interest rate. You can take out personal loans with bad creditHowever, unsecured loans can come with even higher interest rates of up to 36%. You should also be aware of origination fees, which can reduce the amount of cash you actually receive.
Unlike payday loans, it takes at least a year to pay back what you borrow. Carefully consider the pros and cons of personal loans before deciding whether this is the right option for you. The Bankrate team researched a number of personal loan providers, including those with very flexible eligibility requirements and those offering loan terms of seven years. Keep in mind that the lowest interest rate loans are offered to borrowers with good credit.
payday alternative loan
Ideal for credit union members who need a small loan.
Payday Alternative Loans (PALs) are small loans offered by federal credit unions. Payday replacement loans are typically less than $2,000 and are repaid over weeks to months. These unsecured loans are intended to provide credit union members with a low-cost alternative to predatory payday and emergency loans.
- Pal I: The maximum annual interest rate is 28% and you must be a member of a credit union to qualify. Loans range from $200 to $1,000 and must be repaid within six months.
- PAL II: The maximum APR is also capped at 28%, but you must have been a credit union member for at least one month to qualify. The maximum loan amount is $2,000 and the repayment period is up to 12 months.
short term installment loan
Ideal for borrowers with bad credit who need funds quickly.
Borrowers who don’t quite qualify for a standard personal loan may have better luck with lenders that work directly with bad credit borrowers. The annual interest rate on this type of direct deposit loan is still in the triple digits, but it’s often lower than what you’d pay for a payday loan.
Repayment periods are typically measured in months rather than weeks. This takes the pressure off of having to pay off your loan by your next payday and gives you more time to make ends meet, but it also increases the time it takes for costs to add up. When you borrow from these lenders, you can expect to pay much more in interest than you borrow.
These products often don’t require a minimum credit score and are approved based on your income and banking history, similar to payday loans. Funds are typically transferred to your bank account within 1 business day of approval.
Most lenders offering this type of loan don’t charge prepayment penalties, so you can pay off your high-interest balance faster without any additional fees. Some bad credit lenders reviewed by Bankrate offer loans of $500 or less, which can save you money in an emergency, especially if you can pay it off ahead of schedule.
Prepay for apps
Ideal for people who need money quickly but don’t have credit.
A payroll advance is a type of loan that deposits a portion of your paycheck directly into your account. These typically apply to direct deposited checks and may be found at your bank or credit union. It is also common for employers to provide them to their employees. Interest rates often fluctuate, and you will pay interest based on the amount you use. Employers may not charge interest or fees.
If you only need to borrow a small amount, there are many early payday apps available. These apps allow you to directly deposit a portion of your paycheck before your next period and pay it back when you receive your paycheck.
Some apps even let you borrow up to $750 between paychecks. That’s nearly triple the amount allowed by the average payday lender in some states. However, cash delivery or subscription fees may apply.
0% APR Credit Card
Ideal for people with good credit who are confident they can pay off their balance before the trial period ends.
If you have good or excellent credit, you may be eligible for a 0% APR credit card. These cards offer an introductory period during which you won’t be charged interest on transferred balances or new purchases. This makes it ideal for debt consolidation or for emergency purchases that you think you can repay within the promotional period.
Note that interest tends to increase once the introductory period for these cards ends. Use this method only if you are sure that you can pay off your debt before interest starts accruing on your outstanding balance.
Don’t charge additional fees on your balance transfer card while you’re paying off your debt. Once you’ve paid off your debt in full, keep your card and use it for small purchases that can be paid off quickly. Closing your card can lower your credit score, but keeping your card open will increase your available credit and credit mix.
credit card cash
Ideal for people who already have a credit card and only need to pay for small, emergency expenses.
If you have a credit card and only need to borrow a small amount, a cash advance may be a good option. These prepayments allow you to borrow more than your card’s credit limit if you have to pay with cash instead of your card.
Although convenient, cash advance fees may be high. Cash advance interest rates are higher than standard interest rates, and there is usually no grace period before interest starts accumulating. Many credit card issuers charge an additional 3% to 5% fee for cash advances. So a $700 credit card cash advance could cost you $21 to $35 plus interest.
Although expensive, cash advances are safer, cheaper, and more practical than payday loans. We also offer longer repayment options.
401(k) loan
Ideal for people who don’t plan to retire anytime soon, have money in a 401(k) account to borrow, and have a low credit score.
A 401(k) loan is not, strictly speaking, a loan in the traditional sense. We don’t run credit checks and we don’t work with lenders to get your money. Rather, a 401(k) loan allows you to borrow from the funds you have set aside in your 401(k) retirement account. Whether you can borrow from this account depends on your employer and the retirement plan it has set up.
Currently, the maximum amount you can withdraw is $50,000 or 50% of your balance, whichever is less, and you have up to 5 years to repay your balance. If you use your 401(k) to purchase a home, your repayment period can be extended for up to 25 years. However, if you leave your employer during repayment, you must repay the loan by the federal income tax filing deadline.
Before borrowing, use a 401(k) calculator to assess whether your retirement expenses will be recoverable and will not negatively impact your financial future.
conclusion
Payday loans are a convenient way to get quick cash. However, both generally have high borrowing costs and should only be used as a last resort. Instead, consider more affordable payday loan alternatives. Exhaust all other options to avoid falling into a vicious cycle.