Learn about payday loans and other sources of low cost borrowing.
There are various short to medium term loan options, some of which may offer borrowers low interest rates. Families can use these sources of funds in order to get help for paying bills, rent, and other expenses. In general, many of these options should only be used as a last resort when all other options have been tried. Always read the fine print of any payday loan offer or when borrowing funds from any lender, as the repayment terms and interest rates can vary widely.
Learn about all of your options for borrowing money over the short term and financing options below. Households have many options available to them, ranging from payday or car title loans to credit unions, Peer to Peer social network lending, Ways to Work auto programs, United States Government FDIC small dollar loans, and many others. Each one of them will have various pros and cons, and individuals should closely review and terms and conditions before applying to a loan.
In addition to that, consumers should always be mindful of taking on additional financial commitments. Also factor in the repayment terms and any possible hit to credit scores. It is often a better idea to cut down on expenses and to budget properly before applying for any loan, whether from a payday company, bank, or another institution.
Information on banks and lenders that offer loan products
Today’s economy is making it challenging for people to get approved for financing, so many borrowers are turning to personal loans as well. While the interest rate is not the lowest, they are usually a much better option than using a credit card or cash advance.
Another benefit of a personal loan is that even consumers with poor credit scores can usually get approved. This will not only give them the money they need, but it also starts a borrower on the path to rebuilding their credit over time. Find how to get a personal loan from a bank or credit union. Learn more.
Payday cash loans, or some of the alternatives listed below, can be a very risky and costly way to get help with bills. Borrowers should use them only with much caution and also be sure to pay the amount back as soon as possible. You do not want to start a never ending cycle using these products.
These loans are typically priced at a fixed dollar fee, in which the cost represents the finance charge that needs to be paid by the borrower. Due mostly to the fact that these loans have such short repayment terms, the corresponding interest rate and cost of borrowing is very high. In return for the payday loan the borrower will usually provides the lender with a predated check or bank debit authorization.
Peer to Peer or Social lending is a type of lending that occurs directly between regular everyday individuals ("peers") without the participation of a traditional bank or financial institution. It is unique in that people who need money are technically borrowing from “regular” individuals or investors. The interest rates can often be lower than a bank or payday loan and the sign up process is usually very quick. This industry also tends to be less regulated than some others. More.
Salary Advance Loan from a Credit Union, which are a relatively new offering that have been developed by Credit Unions, are a lower cost alternative to receiving cash. The product was created an an alternative to the relatively high costs of payday or bank loans. Read more credit union salary advance loans.
Wells Fargo Direct Deposit Loans are a product that is not as expensive as the traditional payday loan, but the interest rate is much higher than the credit union products indicated immediately above. You will also be dealing with one of the nations leading banks so borrowers will tend to have more protection given to them. It is another option to consider if you need short term help with paying unexpected bills or money for dealing with financial emergencies. Learn more.
US Bank Checking Account Advance - This is another option to consider if you need funds to pay emergency bills. You can get an advance on your next paycheck, and the rates are not as expensive as a typical payday lender. It is a short term loan product that was created primarily to provide cash to people who have unexpected bills but who are gainfully employed. If you decide to use this product, only borrow what you can afford to pay back with your next paycheck. More on the US Bank checking account advance loan.
Fifth Third Bank’s Early Access - This bank is also offering an alternative to payday loans. This tends to be more of a regional offering. The interest rate, while still high, is still lower than a typical payday lender. However the availability of it is limited. Click here to get more information on this option.
FDIC Small Dollar Loan - The Federal Deposit Insurance Corporation (FDIC) has created a new small dollar loan product that provides short term, low interest rate loans to low-income Americans. Many of the people who benefit from this government product have low or no credit scores or they do not even have a banking account.
A huge advantage of this option is that rules and regulations are put into place by the federal government FDIC organization. It is highly regulated and the chance of a scam taking place is non-existent. This federal government product is intended to be an alternative to high cost payday and salary advance loans. To learn more, click here.
Low interest rate auto loans from Ways to Work can help with transportation needs. If you need a car loan, Ways to Work is a non-profit organization that offers people with poor or no credit funds. The money is for buying a car and it is issued as a low interest auto loan. The interest late is much lower than traditional offering from traditional financing companies or car manufacturers. The Ways to Work car loan program is intended to help individuals remain in or advance in their job, and they understand that adequate transportation is needed to do that. Funds can be used to buy an affordable used car. Continue.
Low interest rate Stretch Pay loans is a product is another low interest rate offering that is made available by many non-profit credit unions as well as small regional banks. It is really a credit unions version of a payday loan, however you will be dealing with a major financial institution so there are advantages. They can be used to pay emergency bills and expenses. Learn more on stretch pay loans.
Credit union financing options - There are several regional and national credit unions that are available to the general public. Anyone can join by making a very small donation to a non-profit (usually $5) and opening a savings account. Customers will then have access to loans that can be used to pay a number of expenses, such as rent, car repairs, and they can even borrow money to be used for auto loans. Some also offer low interest rate mortgages, credit cards and other forms of financing, such as signature loans. Read more loans from credit unions.
No collateral Signature Loans from credit unions and banks can help people that do not want to make any commitments. If you need a financing resource that does not require collateral, but that tends to have a higher interest rate, then a signature loan may be another option. This is often thought of as a high risk product. The interest rates will vary based on lender and your financial situation, they will tend to be higher than a credit card as borrowers do not need to make any commitments to providing collateral. So tread carefully. Read Signature Loans.
Emergency loans from churches - There are local as well as national faith based groups that may provide money in a crisis. When a church does provide financial assistance, the dollar amount is minimal. However may will not only try to provide some funds, but they also offer other support such as credit counseling, basic household supplies, and much more. Locate low cost loans from churches.
College loans - Most Universities will provide some form of emergency assistance to enrolled students. The cash provided will usually have a very low interest rate. The money given to the student by a college can pay for bills such as textbooks, car repairs or gasoline to get to class, housing, and other expenses. Borrowers include part and full time students, undergrads, professors, commuters, and graduate students too. More on emergency loans for University students.
Home equity loans are another very effective way to consolidate debt and help pay bills. It does come with advantages (such as tax breaks) and disadvantages (home is collateral). Only families that own property can apply. Learn more and find how a home equity loan can help.
Car or automobile title loans - This product will allow people to borrow money against the value of their automobile. It is often by both payday lending companies and other non-traditional banks. The borrower’s car is in effect used for collateral for the loan. It can provide quick cash, but there are many risks when going down this path. Learn more on car title loans.
Interest free loan financing is available from many charities. There are non-profits, including faith based organizations, that offer funds for emergency situations. The loans will usually be offered at a zero percent interest rate to borrowers. The money disbursed can help those individuals who do not qualify for any forms of government aid or financial assistance from other organizations.
One of the main organizations is the Association of Jewish or Hebrew Free Loans. They operate from dozens of different offices around the country. The organization will help people of all religions and backgrounds. The funds are used to pay for bills, finance a new car for work, pay housing costs such as rental expenses or a deposit, or medications. This type of financing is much better than using a payday loan, and tens of thousands of families benefit from the service. Click more information.
Federal Employee and Education Assistance Fund provides zero percent interest loans to government employees. It is limited in that this program is only for civilian employees of the federal government, however this does include postal workers as well. Referrals may be given to military families or veterans if they are seeking alternatives to high priced payday lenders.
The organization provides this service to help those families that are faced with a short term crisis situation. The loans from FEEA have been used in the past for paying a wide range of expenses, including certain medical bills, emergency car repairs, or even to pay the rent for a month or so. Read Federal Employee and Education Assistance.
Pawn shop loans can be used when the person has collateral to borrow against. The broker will appraise the item being sold and then provide the customer cash for the product. Any money paid out will be in the form of a short term loan, and the interest rate tends to be more affordable that many other products. This form of financing is regulated by the state and federal governments. Continue with pawn shop loans.
Background on payday loans
A payday loan is a small dollar short term source of funding. The maximum loan amount will vary based on many conditions, but is usually about $500-$1,000. It does not require a credit check be completed and this is one reason that many struggling families turn to it.
Payday loans have very short terms and they must be paid back quickly, typically within several days or a few pay periods. They are usually are marketed as a way to help consumers with paying short term bills until the next paycheck is received by the borrower. This is why people with a source of income, whether from a job or government benefit, tend to use them.
Sometimes also called “payroll advance”, “check cashing”, or “deferred deposits,” these short term loans provide a fast way to access emergency money to help with paying bills. Many states regulate them as well as the entire industry. Note that many payday lenders are not bonded, licensed, or regulated at all by those important consumer laws.
How does a payday loan work? As an example, imagine your car broke down and you then decide to borrow $300 to pay for the car repairs from a payday loan lender. You will write a postdated personal check for $340 (which is the $300 plus a finance fee) made payable to the lender. You will need to submit this information, or enter the information online if you are applying for a payday loan through the internet. Almost all applications are approved.
The lender will then advance you the $300 for a short, set period, usually 14 days. When that period is up, you need to pay the lender $340 in cash, let them deposit the postdated check you gave them, or you can write another postdated check for the $340 amount plus an additional finance fee. Note, if you do not pay this loan back to the lender in full at the end of the term, you will then be charged an additional finance charge and other fees. This is why it is critical to not enter into a cycle of missing payments.
These loans are used by just about everyone with some type of steady income and a checking account can get a payday loan to use for help with paying their bills or debt. However, this type of loan is generally most common for borrowers who do not have access to savings accounts or credit cards. Other users of the product may be immigrants, military families in which a key wage earner is deployed, and the working poor.
Since these loans do not require a background or credit check, people that have credit problems or no credit scores will often turn to payday loans as a quick source of money. Due to this fact some of the lenders may try to prey on these applicants or provide them with complicated repayment terms.
Benefits of using a payday loan - If used properly, payday loans can be a good way to easily and quickly borrow cash during an emergency if you have no other financial options available. But they should always be one of the, if not the, last resort.
As an example of this, you may use a payday loan lender for a temporary and immediate financial need such as a car repair (so you can get to work and don’t lose your job), medical bill, or another one-time expense. If you do decide to use them, be sure to pay it off with your next paycheck, if not earlier. Payday loans are helpful for people who don’t have credit cards or savings available. As application process does not require a credit check, they are easy for people with financial problems to obtain.
There are many negatives of using a payday loan. It is absolutely, 100% crucial that you repay a payday loan immediately, as soon as possible. The way many people get into trouble with these types of short term, cash loans is they are unable to immediately and quickly repay the debt.
Why is this so important? If you cannot repay the payday advance loan at the end of the term, you will be charged expensive additional fees and the interest rates may reset. This can quickly lead to trouble, and maybe even bankruptcy. It is extremely costly to be stuck in a never ending payday loan cycle for an extended period of time, and it can lead to bigger financial problems.
Payday loans are also significantly more expensive than some other methods of borrowing money, as indicated on this site. In many instances the annual percentage rate (APR) on a payday loan will average about 400%, but in extreme cases, the APR can be as high as 5,000%. You need to compare that to a standard credit card that has an APR of 12%. A standard bank loan APR is around 7%. If at all possible, it is always better to use a credit card or, better yet, tap into your savings in the event of an emergency to get needed help with paying bills.
A major challenge is that many payday lenders may make it difficult to stop a withdrawal from your bank account. Borrowers have been charged improper overdraft fees and other charges on their accounts. The federal government and the Electronic Fund Transfer Act can protect consumers from these fees and recurring withdrawals. It also helps regulate the industry and the transfer of funds. Read stopping withdrawals from payday lenders.
The Consumer Federation of America has created some studies on the challenges and expenses of payday loans. The non-profit also has ideas and suggestions that potential borrowers should explore when they are seeking any type of short term financing. More details.
If you need help eliminating a payday loan, there is assistance available. If you are over your head in payday loan obligations and debts, and need assistance dealing with them, you do have numerous options. Some of these can include payday loan consolidation programs and using the services of various companies that work with lenders. There are also not-for profit credit counseling agencies as well as state consumer protection boards that may assist. More payday loan consolidation.
What about usury laws? - Many states have very created, or are creating, laws that help regulate the lending industry. These are called “usury laws”, and these regulations define permissible lending rates and terms. Some states now also have laws that will regulate the amount a payday lender can lend to consumers as well as how much they can charge for the payday loan.
Other states are now banning this form of lending outright, such as New York State. Granted, these state laws vary widely and are always changing. Payday lenders are now often working around these laws and regulations by partnering with banks that are based in other states, such as Delaware, or even overseas. Finding a proper balance between government regulations and providing funds to borrowers is a constant struggle.
It is extremely important to read the fine print on the payday loan offer. You need to understand your consumer rights, or get help with your rights. Click here.
Should I apply for a payday loan? Each and every time before you consider applying for any type of payday loan, you need to step back and consider your other options for getting help with bills. Be sure to ask yourself if it really is an emergency.
As mentioned, payday loans can be helpful for one-time emergency costs such as a car repair or medical bills, but they are not a good idea for funding unnecessary expenses. Ask yourself, is it possible to wait to repair your car or can you wait to pay your bills until your next paycheck? Can you get help from friends or family, or maybe another lender? Always remember that a $25 late fee on a bill is much cheaper than a $40+ finance charge for a payday advance loan. Think about some other ways to borrow money to get any help you may need for your bills.
Alternatives to payday loans include:
There are some lower cost options for consumers to consider. For example, one socially responsible lender that is partly owned by Google is LendUp. While they do offer short term loans, the interest rates are much lower and the financing is also combined with free credit counseling and other educational services for borrowers. More on LendUp low interest rate loans.
Some other suggestions that consumers should consider are the following.
- Charge the amount of your bills to your credit card
- Negotiate a payment plan with your creditors. Lean more.
- Receive a payroll advance from your employer
- Use your bank’s overdraft protections
- A Salary Advance Loan from a credit union. Continue.
- Try to obtain a line of credit from an FDIC approved lender
- Take money from your savings account for help with paying bills
- Apply for a traditional small bank loan
- Ask a friend or relative to lend you the money
- Ask your creditor for just a little more time to pay a bill
- Use the cash advance features on your credit card
- Peer to peer loans. More.
There are several other alternatives to explore as well. As small dollar, shorter-term personal loans can be issued by community banks, online companies, and many other lenders. It is recommended to shop around before applying. Find more information on short term loans and where to find them.
If you have evaluated these, and any other options you have and still decide an emergency payday cash loan is the best option for you, then you need to be sure to understand all the terms. Closely review the costs and read the fine print before you apply. Some tips are below. If you do not understand them, ask for help.
- Look around for a trusted payday lender that offers lower fees and rates.
- Borrow just as much as you know you can pay back to the lender with your next paycheck.
- When you get your next paycheck, your need to make your first priority as paying back the loan immediately.
- Try to increase your income over the short term. Look into a work from home job to help pay off a payday loan and assist with paying bills.
If a family has already borrowed too much from a lender or bank, they can get help in reducing their financial obligations. There are programs that help with everything from payday loans to credit cards and more exotic forms of borrowing. Much of the assistance is reducing debt payments and financial commitments is offered for free. Find ways to get out of debt.
What can I do to better prepare for any financial emergencies?
While no one can always predict an emergency, you need to be prepared. Ideally, you should always try to keep enough money to cover your household bills for at least two months in a savings account. If this savings goal is too high, you need to aim to save at least the amount of one paycheck. Also, it is a good idea to have a few credit cards available to you for paying unexpected costs as it is more affordable than some other options.
Payday loans can be useful is certain situations for consumers who need short term cash to help pay emergency bills for a short period of time. As noted, using this source of funds will come with high costs, risks and numerous dangers. However, if you do have limited options available and if you also understand how to use payday loans correctly, then feel free to use them but be careful.