When you are short of cash, the promise of payday loan’s fast money without hassle may seem like an attractive option. But payday loans are not the only option available to you.
Payday loans often come with high-interest rates and the renewals have their dangers. Every time the loan rolls over the next month, you have to pay a certain fee. Renew the loan a few times and you may end up paying more in fees than the amount you borrowed and get trapped in a debt cycle.
Thankfully, there are several payday loan alternatives that you can try out if you are not comfortable with payday loans.
5 Best Payday Loan Alternatives in 2020
- Personal Loans
Personals loans are possibly the best payday loan alternative that you can try out right now. If you require money for a specific need, you can look to acquire a personal loan from a bank or credit union at a much cheaper rate.
Apart from traditional financial institutions, you can also check out various online lenders to see the rates and terms you are eligible for without any hard credit check. Although you won’t be getting personal loans on the same day like payday loans, you will get the funds within a few days once approved.
- Payment Plans
If an impending credit card bill or other loan payment is troubling your ability to meet your basic expenses, try to negotiate a payment plan with your creditor. Several credit issuers offer hardship programs that let you to temporarily reduce or suspend your credit payments when you are unable to pay.
The chances of getting a payment will be higher if you have a good track record as a customer in the past. Be honest and upfront with your problems to boost your chances.
- Credit Card Cash Advance
Even though credit card cash advance is not a cheap alternative, it is still better than payday loans. Issuers normally charge a percentage of the cash advance as a fee, usually around 5%, with a minimum of $5 to $10.
The key here you need to pay off the advance straightaway before the interest on the borrowed amount gets out of control. The interest on credit card cash advances starts accruing immediately unlike balance transfers or purchases.
- Payday Alternative Loans
A few credit unions also offer short-term payday alternative loans to prevent borrowers from going for high-interest payday loans.
These alternative loans are usually available in various amounts ranging from $200 to $1000 with terms ranging from 6 months to 1 year. The issuing authority may also charge a small application fee usually around $20, but you have to be a registered member of that credit union for at least a month to become eligible for the payday alternative loan.
- 401(K) Loans
You can also borrow against your 401(K) as it does not incur any taxes as long as you abide by the terms. This means you have to pay off your loan according to the schedule or in full in case you decide to leave your employer for another one.
There is no credit check and you will pay the interest back to your account. As long as you repay the loan within a year, there will be minimal impact on your long-term gains.
Remember, your employer may prohibit you from making new contributions to your 401(K) while you are repaying your loan. This may negatively impact your retirement allowances and social security benefits when eligible.