There are many different situations in our lives that can require a big sum of money from you right away, like a car accident or the need to pay for medical expenses, so you might have heard about Payday loans.
But are you sure that this is the best option? Because we are not. Here, we would like to explain to you what payday loans are and show other options that you have aside from them.
Payday Loans: Why They are not the Best Choice?
Generally speaking, payday loans are a short-time kind of borrowing that you get from a lender before paying him or her for that. The creditor expects you to pay back on your next payday, which is why this loan is called a payday one.
Right now, everything sounds great, but what you also need to know about is the enormous interest rates that your lender will put on you: they can go up to 400 percent!
Yes, payday loans are great for emergencies, but their tremendous rates will only keep you in a cycle of debts: not everyone is able to pay back these interest rates the next payday, which is why many people continue to take loans to cover older ones.
In a case when you did not pay off the loan during the agreed-upon time, many states are allowed to roll over your payday loans, which means that higher rates will be put by your lender.
Additional disadvantages of payday loans are the following:
Only small amounts of money are available in payday loans. This also depends on your state, but you usually will not get more than a few hundred dollars, which is not enough in most emergency situations.
There is no opportunity for you to repay the debt with partial installment payments: payday loans require you to return the whole sum on your next payday.
It is common for payday lenders not to report your payday loans to the credit bureaus, meaning that you will not be able to improve your credit score by repaying these debts on time. However, not paying or paying but later will damage your credit score.
Payday Loan Alternatives
Here you will find 10 different substitutions of payday loans that we believe are worth considering in crisis situations.
1. Take a Payday Alternative Loan
Some types of credit unions provide the so-called payday alternative loans or PALs. These credits will cost you less than the usual payday loans. As long as you are a member of a credit union for at least a month, you can take an alternative payday loan of up to 1,000 dollars, and your loan term will range from 1 to 6 months.
The interest rates of PALs are still high, but not in comparison with the original payday loans: according to the law, they cannot go higher than 28 percent. This is definitely better than a 400 percent interest rate, don’t you think?
2. Create a Payment Plan
You can also try to make a payment plan for the company to which you owe money. Yes, we understand that this might be uncomfortable for you, as you will have to talk to the company, but it is still better than paying huge interest rates for a loan that, for example, was two times smaller.
You can ask the company whether you can create a payday loan alternative, such as dividing your debt into two parts, one of which would be paid now and another one – later.
Another possibility is for people with federal student loans: you can also call your loan servicer and ask whether it is possible to defer your debt.
An income-driven repayment plan can also help you to pay off the loan. For example, your monthly payments could be lowered to a small amount of your income so that the loan would be paid off.
With this method, you will simply need to talk to your lender and ask about your options.
3. Use the B9 Cash Advance App
When an advance on your paycheck is needed, you can use B9 the services of payday advance apps.
They differ from payday loans in the way that payday advances are not considered to be loans, which means that B9 will not take any interest from you. In general, this makes payday advances more available to a bigger proportion of workers with stable income.
The B9 app will give you a part of your usual income as an advance without interest. You usually will not meet any additional fees but will have an pay subscription ($9.99/monthly)
4. Go Into Your Savings
Yes, it might be hard to create your own savings, as well as time-consuming, but it is definitely better than taking a payday loan. This way, when you will find yourself in need of extra cash, you will not have to worry about the money and consider payday loans with their enormous interest rates.
Savings will allow you to simply take the money from yourself and return them back whenever you want. You can think about using your savings as an investment in your own future. Who would prefer paying some lender a 400% interest back over returning the money to yourself, whether in the same amount or even bigger?
Returning the money back to your savings account will benefit you, whereas payday loans will only take the money away from you.
5. Borrow the Money From Your Close ones
Not everyone has such an option, but if you do, why not use it? Your family or friends can save you from the vicious circle of infinite loans. Ask them before going with payday loans.
However, you should be really careful with this method. Clearly state the amount needed and the time frame within which you promise to return the money. Otherwise, you may end up ruining your relationships with friends or family.
No matter how hard it might be to ask your close ones about a loan, this method will save you from the burden of repaying huge interest rates.
6. Take a Part-time job
A part-time job is the next thing to do after cutting back on any vagaries of yours. This will help you to make additional money without having to trouble anyone else, be it your family, friends, or lenders.
When you have some free time to waste, consider doing the following side hustles:
Babysitting
Doordasher
Graphic Design
Uber driving
Dog walking
Postmates, and so on.
7. Take a Personal Loan
A payday loan is not the only credit that you can take from a bank or any other lender, and it definitely should not be your first option.
But what you can consider taking out from a bank or credit union is a personal loan. In most cases, you will also need a good credit score to be able to get a personal loan, but this depends on your lender.
Personal loans definitely have lower interest rates, and their time frame for the payoffs is bigger.
8. Sell Some Things
Sometimes emergency situations require you to do some unusual things, such as sell the stuff that simply gathers the dust in your attic. And when some extra cash is needed right away, there is no better time to get rid of them.
You can do so by using different platforms, such as:
Facebook Marketplace,
OfferUp,
Poshmark,
Craigslist
By selling some of your things, you can get the money that is highly required by you right now, and without the need to use the services of other people.
9. Use Your Credit Card
While it is usually not a great idea to overuse your credit card in real life, it is still a better option than getting a payday loan.
You can still receive up to 16 percent of the interest rate, but it is nothing in comparison with the conditions of payday loans.
Simply make sure that you do not max out your credit card, as this will influence your credit score in a bad way, and use your credit card for emergency situations.
10. Find out about a Line Credit
Some financial institutions might give you a line of credit, which is basically a particular amount of money that you can draw from, and the interest is paid only after you have taken some amount from a line credit.
This is another great method that can help you avoid dealing with payday loans and their unfair conditions.
B9 Loans Alternatives
Besides the options for getting loans with B9 bank, there are additional alternatives for the payday loan that accepts B9. For example, B9’s app provides faster access to the money of eligible customers: if you seek payday loans with B9 account with early direct deposit, you will receive your money 2 days earlier in comparison with the time frames of usual banks.
B9’s eligible clients have a SpotMe function that gives out appealing overdraft conditions: with B9 bank personal loans, you will not receive any fees for an overdraft that is up to 200 dollars.
And with the help of B9 Credit Builder Credit Card, you can withdraw money from an ATM as an advance that goes without any additional interest rates or fees. Payday loan with B9 account is legit and available for borrowers of any kind.
Frequently Asked Questions
What are the Payday Loan Alternatives for People With Bad Credit Scores?
Note that most of the options listed above are applicable to people with bad credit scores. In addition, there are lenders that still provide bad credit score applicants with personal loans, for example.
How can I pay off my Payday Loan Debt?
You can try to persuade your lender to allow you to make a repayment plan, or you can take an additional loan with a lower interest rate that would allow you to pay off your current payday debt. In addition, you can think of additional ways to come up with extra cash.
If none of the above is applicable to you, debt settlement or bankruptcy might be the only way to go.
What Will Happen If I Default on the Payday Loan Payment?
The lender will turn your debt over to collections in that case. This will negatively influence your credit score and will go into your credit file, which will make your future borrowing harder or even impossible. In addition, lenders can report on you to the credit bureau, which, again, will have a negative impact on your credit score. The bureau can even take your case to court.