Payday Loans Online? Try These 12 Alternatives Instead

Payday Loans Online? Try These 12 Alternatives Instead
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Brittney Mayer
By: Brittney Mayer
Posted: May 28, 2019
Our popular “How-To” series is for those who seek to improve their subprime credit rating. Our articles follow strict editorial guidelines.

No matter how much money you make, the core principle of healthy personal finances is the same: Spend less than you make. For whatever reasons, however, nearly half of Americans regularly fail to achieve that goal, and most Americans don’t have enough in savings to handle an unexpected emergency.

If you’re among the millions of people living paycheck to paycheck, you likely know the panic of getting hit with a bill you simply can’t afford to pay. But, before you go looking for costly payday loans online or heading to the cash advance store down the street, be sure you’ve really considered all of your financing options.

Why? Because, as you’ll quickly discover, no matter how convenient, payday loans are rarely a good idea — nor an affordable one. Read on to explore the problems with payday loans, as well as alternative ways to avoid using payday loans.

Payday Loan Problems | Top Alternatives | FAQs

The Problems with Using Payday Loans

Medical bills, car repairs, a missed day of work — if you are living paycheck to paycheck, any financial hurdle can upset the delicate balance of getting your bills paid. And, when smack dab in the middle of the perfect storm of bad credit, no savings, and looming due dates, payday loans can seem like a convenient solution.

Think twice before you start shopping payday loans, however. In fact, think three times, do some math, and do a lot of research into your alternatives. While there might be the occasional rare circumstance under which a payday loan is the right move (hey, anything’s possible, right?), there are a few important reasons to avoid them.

Short-Term, Lump-Sum Repayment

The repayment structure of a payday loan is a big part of the overall problem, and the one-two punch of high cost and poor repayment structure is what often leads to borrowers getting stuck in the infamous payday loan cycle — a trap that can be remarkably difficult to escape for many consumers.

Installment vs Short-Term Loans

The main issue with the repayment structure of a payday loan is the single, lump-sum repayment. Basically, when you get a payday loan, you’ll have a single due date on which you’ll need to repay both the entire principal amount plus any and all finance charges and extra fees.

What’s more, you don’t have long to get your hands on the funds to repay your loan. The typical payday loan term is just two weeks long — the same length as the average pay period (though some lenders may offer you a due date four to six weeks out).

Unfortunately, many borrowers who are already struggling with a financial upset have a hard time righting the cart within a few meager weeks. This leaves them without the means to pay their loan, resulting in costly rollover and late fees — and starting what often becomes a vicious cycle.

Very Expensive

Another key reason to avoid payday loans is the cost. When compared to other types of credit, payday loans are usually more expensive — and not just by a little. A typical two-week payday loan can have an APR more than 11 times higher than even the most expensive installment loan.

Rather than calling the fees interest, most payday lenders charge a finance fee for each loan. The finance fee is generally a set amount that is charged for every $100 borrowed. For example, a common finance fee arrangement is to charge $15 for every $100. So, a $300 loan would come with a $45 finance fee. For a typical two-week payday loan, that’s an APR of nearly 400%.

Of course, that’s assuming your finance fee is the only charge you need to pay. Depending on your state and your ability to repay the loan, you could also wind up being charged a number of additional fees:

  • Rollover fees: As we mentioned above, many borrowers have trouble repaying their payday loans on time due to the high cost, short term length, and lump-sum repayment structure. This combination leads to extending, or rolling over, the loan’s due date — by paying more fees.
  • Late fees: While many payday lenders offer extensions, some may charge you a late fee if you don’t extend your loan before your due date comes around.
  • Repayment plan fees: Lump-sum repayment payday loans are actually illegal in some states, requiring lenders to offer a repayment plan instead. However, the fees lenders can (and will) charge for the repayment plan option can vary by state.
  • Prepaid debit card fees: If your payday loan is paid out to you via a prepaid debit card, you likely will pay a fee for that convenience.

Add any one of these extra fees — or, worse, all of them — to an already sky-high finance fee, and you’re looking at a loan that is not just expensive, but downright debilitating to someone for whom the weekly paycheck is already spent before it even arrives.

Don’t Build Credit

While many people may overlook this last point as unimportant in the face of their financial emergency, it can actually be an extremely relevant factor for consumers with poor credit who are in need of rebuilding. That’s because their credit may be the very reason they’re thinking about expensive payday loans in the first place.

Basically, your credit scores are based on the information in your credit reports. You have three main credit reports, one each from the three major credit reporting bureaus: Experian, Equifax, and TransUnion. While the bureaus store your credit data, they don’t really seek it out; instead, creditors are responsible for reporting the information to the bureaus to be added to your reports.

Most lenders that offer traditional installment loans will report your payment history information to the bureaus. This means that paying your loan on time every month can help you build positive payment history and improve your credit scores.

Accounts That Don't Build Credit

Payday lenders, on the other hand, rarely report loan information to the credit bureaus. As a result, payday loans can’t typically be used to establish a credit history or to build credit or increase credit scores. At the same time, don’t assume this means they can’t hurt your credit — if you default on (don’t repay) your payday loan, the lender is likely to report that negative account to the bureaus.

Top Alternatives for Small Loans & Short-Term Financing

So, now that we’ve covered why you may want to avoid payday loans, let’s look at some ways you can potentially follow that advice. While your options are going to be a bit more limited when you have poor credit, that doesn’t eliminate them entirely.

Even with a poor credit score, you likely have a number of alternative options, including a few credit products — such as credit cards and installment loans — as well as some unconventional tools like paycheck advance apps from modern and cutting-edge financial technology companies.

Credit Cards | Loans | Cash Advance Apps | Credit Unions | Earn Extra Cash

Credit Cards for Bad Credit

In many ways, credit cards are ideally — and intentionally — designed for short-term financing. Credit cards allow you to carry a balance from month to month, charging moderate minimum payments each billing cycle but not requiring you to pay in full.

While credit cards for consumers with poor credit do tend to charge fairly high interest rates, those rates are just a fraction of the size of the rates charged by payday lenders. Furthermore, most credit cards allow you to actually skip the interest entirely thanks to the interest-free grace period.

Basically, if your card has a grace period and you pay your balance in full by the due date, you won’t be charged any interest on your balance. Since a grace period must be at least 21 days, by law, you can get at least three weeks of interest-free financing just by using your credit card.

Although many cards offer a grace period — even cards for bad credit — it’s not actually required, so be sure to read your card’s terms and conditions to see if your card has a grace period. Even without a grace period, of course, credit cards may still be a good option thanks to APRs that are lower than those for payday loans.

  • See if you Pre-Qualify without harming your credit score
  • Track your progress with free online access to your Experian credit score, terms apply
  • Looking to rebuild credit? We report to the major credit bureaus monthly
  • Accounts are automatically reviewed for credit line increase opportunities
  • Make paying your bill easier with the ability to choose your payment due date, terms apply
  • Stay in-the-know with customizable account alerts via email and text
  • Receive 1% cash back rewards on eligible purchases, terms apply
  • Enjoy peace of mind with $0 Fraud Liability
  • Click here for official site, terms, and details.
★★★★

4.3

Overall Rating

Application Length Interest Rate Reports Monthly Reputation Score
8 minutes 20.24% - 26.24% Variable Yes 9.0/10
  • Applying is quick and easy with a fast decision process
  • Less than perfect credit is okay
  • 24/7 access to your account information, even on mobile
  • Card designs to fit your personality at no extra charge
  • Account history is reported to the three major credit bureaus in the U.S.
  • Click here for official site, terms, and details.
★★★★

4.2

Overall Rating

Application Length Interest Rate Reports Monthly Reputation Score
8 minutes 24.9% Yes 9.0/10
  • Easy pre-qualification process with fast response
  • All credit histories considered
  • Online servicing available 24/7 at no additional cost
  • Unsecured credit card, no security deposit required
  • Account history is reported to the three major credit bureaus in the U.S.
  • Click here for official site, terms, and details.
★★★★

4.2

Overall Rating

Application Length Interest Rate Reports Monthly Reputation Score
8 Minutes 24.9% Yes 8.0/10

One thing to watch out for when considering opening a new credit card with poor credit is that most subprime credit cards will charge some form of upfront fees, be it an annual fee that is charged when you open the account or a processing or program fee to get started.

In some cases, these fees may end up being higher than the finance fee of a small payday loan. However, remember that these fees are typically one-time (or once a year) and credit cards are reusable; once you pay down your balance, you can use your credit card again next month if needed. If you need a second payday loan, you’ll pay those fees all over again.

Plus, so long as you make at least the minimum payment required every month, your payments will be reported to the bureaus as positive payment history. This can boost your credit scores, eventually helping you qualify for better cards with lower fees and more perks.

Installment Loans for Bad Credit

Although some states are slowly starting to pass laws requiring payday loans to have an installment-based repayment plan option, that isn’t the case everywhere, and as we’ve mentioned, the lump-sum repayment required for a payday loan can easily lead to a painful cycle of debt. Going with a personal installment loan, instead, allows you to bypass many of the downsides of a payday loan.

A key aspect of getting a good loan, especially with bad credit, is being sure to do your research and comparison shopping. Online lending networks, like those below, are popular tools for shopping multiple loans without needing to fill out multiple applications.

   
★★★★★

4.7

Overall Rating

Loan Amount Interest Rate Loan Term Loan Example
$500 to $10,000 5.99% - 35.99% 3 to 72 Months

See representative example

Online lending networks are useful, but if you prefer to go straight to the lender, try exploring some of these other installment loan options.

7. Avant

Avant is a direct lender offering personal loans to consumers of all credit types, though applicants will need a minimum credit score of 580 to qualify. Loan amounts can reach $35,000, but bad-credit applicants are unlikely to qualify for the maximum amount.

Avant

  • Loan amounts from $2,000 up to $35,000
  • APRs from 9.95% up to 35.99%
  • Minimum credit score of 580
  • Minimum income of $20,000

Specific rates and fees will vary by state, but the lender charges no prepayment penalty for paying off the loan early. Applicants will need a minimum verifiable annual income of at least $20,000 to be approved. Loans can come with an administration fee of up to 4.5% of the loan amount, and the fee is taken out of the loan at the time of funding.

8. Finova Financial

Finova Financial may be a good option for consumers who struggle to find an unsecured loan, as Finova allows applicants to apply for secured loans using a vehicle as collateral. Adding collateral to the loan reduces its risk and allows Finova to offer loans to borrowers with a range of credit scores.

Finova Financial

  • Loan amounts from $750 up to $5,000
  • Maximum 30% APR
  • No minimum credit score
  • Minimum income varies

Not just any vehicle will qualify, however. Not only must be vehicle be entirely paid off, but you’ll also need to have comprehensive and collision insurance prepaid for the entire duration of the loan. And make sure you drive safely — an accident may cause your loan to come due. Borrowers will be responsible for paying the $75 DMV Lien Fee and may need to pay a Document Stamp Tax. Fees are rolled into the loan and included in the Finance Charge.

Cash Advance Mobile Apps

Although many short-term payday loan lenders call themselves “cash advance lenders,” that title is just window dressing; payday loans are less cash advances than they are very expensive loans that happen to have due dates that coincide with your paychecks.

However, the growth of financial technology has brought with it a number of young companies that actually offer real paycheck cash advances — and they do so without charging you an APR in the three digits. In fact, a number of helpful cash advance and budgeting apps allow you to get paid earlier with minimal fees.

9. Earnin App

Earnin is a mobile app that allows you to log your work hours and get access to the pay you’ve earned the same day you work. Since it’s not considered to be a loan, the service charges no origination or interest fees, and the only cost is whatever you decide to “tip” through the app (up to $14 per use).

Earnin App

  • Withdraw up to $500 per pay period
  • No cost; option to add “tip” up to $14
  • No minimum credit score requirement
  • Must have hourly, salaried, or on-demand job

You’ll need to download the app and allow it to access your phone’s location services to log your work hours. An active checking account is also required, and you’ll need to give Earnin access to withdraw funds from your checking account so that Earnin can deduct your advances after you get paid.

10. Dave

Dave is a helpful budgeting app that also happens to provide small — up to $75 per paycheck — payday advances with credit checks, origination fees, or interest fees. Users pay $1 a month for the app (whether they use the cash advance service or not), with the option to add an extra “tip” for cash advances.

 Dave

  • Monthly fee of $1
  • Cash advances of up to $75 each paycheck
  • No interest fees
  • No credit check required

While payday advances are a useful aspect of this app, Dave also has a number of other features unlocked with the $1 monthly fee, including bill reminders. Users can even set up a budget and get automatic alerts if they’re spending too much money or are in danger of overdrafting their account.

11. MoneyLion

MoneyLion is slightly different from the other options, as it is actually an online checking account — one without monthly fees — that also offers the ability to obtain paycheck advances of up to $250 with no interest or origination fees.

MoneyLion

  • Core Membership has no monthly fee
  • Cash advances of up to $250 each paycheck
  • No interest fees on advances
  • Free credit monitoring

A Core MoneyLion membership is free, but users also have the option to upgrade to a paid Plus membership. The Plus membership costs $29 a month, but users who log into the app every day can have the monthly cost waived. Plus users get all of the advantages of Core users — including free checking and free advances — as well as access to low-interest credit-builder loans and weekly credit score updates.

12. Credit Union PALs

One of the driving forces behind any given financial institution is the method in which it distributes its profits. For big banks, this typically means the profit goes to a group of investors and shareholders. Credit unions, on the other hand, are actually owned by their members, so all of the profits are rolled back into the credit union and distributed to members through reduced fees and better interest rates.

Along those lines, federal credit unions offer members special Payday Alternative Loans, or PALs. These are small — $200 to $1,000 — loans with terms between one and six months with low fees designed to be an affordable alternative to payday loans.

Credit Unions

  • Loan amounts will vary by CU
  • APRs from 3.00% up to 35.99%
  • Minimum credit score will vary
  • Minimum income will vary

You can search for a local credit union online through the Credit Union Locator tool provided by the National Credit Union Administration. You’ll need to join the credit union from which you wish to get a loan if you are not already a member. Living, working, studying, or worshiping in the geographic area of the credit union is typically enough to be eligible for membership, though you’ll likely also have to open a credit union checking or savings account.

Make a Sale or Get a Gig for Extra Cash

For many people, the knee-jerk reaction to a sudden bill is to turn to a form of financing to get through. But, what may be best for both you and your long-term financial health is to simply find a quick way to make some extra money. Fortunately, the modern digital world has a number of ways you can use the power of the internet to make a few extra bucks.

  • Drive or deliver: If your car (and your driving record) is in decent shape, you can become a rideshare driver for Uber and Lyft. If you’d rather deliver than chauffeur, you can find jobs delivering everything from Amazon packages to groceries to restaurant meals.
  • Pick up a same-day gig: If driving isn’t your thing, you can get same-day, short-term gigs from sites like TaskRabbit or Wonolo.
  • Online surveys and market research: Data is the currency of the future, and companies are happy to pay you to get data on what you like. You can find a number of online survey sites that will pay you anywhere from $1 up to $75 to fill out questionnaires for various companies.
  • List unused items: Something as simple as cleaning out your closet may get you the extra cash you need if you have some unused items in good condition. List your (gently) used clothes, household items, and other goods on popular sites like eBay or Craigslist to find your old stuff a new home — and your old pocketbook some new money.
  • Rent out your stuff: If you have it, somebody probably wants it. Rental sites, such as Rentah, Loanables, and Zilock, allow you to rent out nearly anything you own to locals in need.

The time it takes to get your money will vary based on the method (or methods) you use. Some routes may take several days to furnish your funds, so be sure you research how long it takes to get paid, especially if you need the money quickly.

Can You Get Loans Without a Credit Check?

One of the driving forces behind most consumers who turn to payday loans is a bad credit history that makes most other forms of financing seem out of reach. That’s because payday loans are often one of the few types of credit you can get without a credit check, making them appealing to borrowers who have been rejected by other lenders.

But, while you technically can qualify for payday and other expensive cash advance loans without your bad credit getting in the way, the real question is more a matter of should you do so. As we’ve outlined in the first section, payday loans have a number of serious negatives that should be carefully considered before you go forward.

Essentially, lenders use credit checks to determine the risk inherent in lending to a particular borrower. In other words, lenders want to know how likely you are to repay any money you borrow, and they rely on your previous payment history and existing debts to determine whether you’ll pay them back.

Credit Scores and Risk

Lenders that don’t check your credit history aren’t doing so to be generous. Instead, they’re making a bet that they can earn more in interest or fees than they lose in loans that don’t get repaid — which is why these types of products cost so much. And the payday lending industry is certainly thriving, so it seems to be a winning bet.

On the bright side, the original conviction that bad credit means only payday lenders will work with you may not be accurate. As we’ve laid out with our alternatives, most consumers have options besides payday loans that may help cover an unexpected bill or even help you to escape the payday trap if you’re already stuck.

Are Payday Loans Illegal?

The answer to the question of the legality of payday loans isn’t quite cut and dry, and it will actually vary based both on the state where you live and the particulars of the loan. A number of states prohibit payday loans entirely:

However, in most cases, states don’t outlaw payday loans by name. Some states do have strict interest rate caps on loans that prohibit the exorbitant APRs typically charged by payday lenders — limits that often discourage lenders from operating in those states.

For example, while payday loans are technically allowed in New Hampshire, the state caps loan rates at 36% APR, about 10 times lower than most payday loans charge in interest. Colorado prohibits lump-sum repayment loans, requiring a minimum term length of six months.

A few states limit APRs but allow finance fees, which effectively caps the overall cost of a payday loan. Most states have few limitations at all on fees, though some of these states may have restrictions meant to prevent debt traps, such as limits on how many payday loans a consumer can obtain in a given time period.

Payday Loan Legality By State

You can check to see if a particular payday lender is licensed to do business in your state of residence by contacting your state regulatory agency or attorney general. Loans made by lenders not licensed to operate in a given state may be deemed void, which would mean the lender doesn’t have the right to collect on the loan.

Can You Go to Jail for Not Repaying a Loan?

Once upon a time, being in debt was more than a financial problem — it could also land you in a special kind of jail known as debtor’s prison. There you would stay until you secured funding from someone outside or you were able to work off your debt.

Debtor’s prison was eliminated in the U.S. more than 150 years ago, but there are some still ways you could wind up in jail for not paying your debts. Specifically, a failure to pay any court-ordered debts, such as court fees or child support, can result in jail time. In essence, you go to jail for a failure to comply with the court, rather than for the debt itself.

Additionally, intentional acts of credit or bank fraud, such as purposely writing bad checks in an effort to defraud banks or merchants, are still most definitely illegal. Financial fraud can — and almost certainly will — lead to your arrest and prosecution under the law.

“If you owe a debt and a debt collector tells you that you may go to jail for not paying your bills or implies such a threat may occur, you may sue them under Federal and potentially state law depending on which state you live in.” — Experian

Currently, you can’t be arrested simply for owing consumer debt; for instance, you won’t be arrested if you’ve defaulted on a personal loan or fall behind on your credit card payments. Moreover, the Fair Debt Collection Practices Act prohibits debt collectors from threatening you with arrest or otherwise misleading you about the consequences of your debt.

Avoid the Payday Trap with a Better Plan

The basic foundation of any sound financial plan is to spend less than you make. This applies equally to the rich as the poor, to those with good credit or bad, and to consumers or businesses.

But, even the best of intentions can leave you strapped for cash before your next payday, especially when you don’t have an emergency fund into which you can tap. While payday loans can seem like a convenient solution — particularly if you have bad credit and have been rejected by other lenders — that convenience comes at a very high cost.

Before you ever consider taking on a payday loan, be sure you’ve exhausted all of your options, including all of the alternatives we have included here.