Lower Interest Alternatives to Payday Loans

Payday lending won’t solve a financial crisis; it will, however, create one. Getting a payday loan is not the only option for consumers facing financial problems. There are many ways to prevent those problems that may require a payday loan, such as saving up in an emergency fund or working out payment plans with creditors. There are also different, lower interest alternatives that consumers should consider when they think they need a payday loan to get cash quickly. These alternatives will all cost less and have better repayment terms than most payday loans.

Credit Union Loans
Credit union lenders may offer small, short-term loans to their members. These types of loans give the borrowers a better chance to repay because they have longer payback periods and installment payments. Not all credit unions will offer these loans, but most do. Before you go in to your local credit union, make sure you know the interest rate that will be on the loan and exactly how much you will have to pay back to the credit union. With this information, you should know if you will be able to afford the loan.

One example of a great credit union offering this service is the North Carolina State Employees’ Credit Union. They have a salary advance loan program that offers no-fee loans at about 12% annual interest. That is about 30 times cheaper than your typical payday loan. These credit union members can borrow up to $500 per month, and pay it back with their next paycheck.

Small Bank Loans
Many banks have started to offer alternatives to those seeking payday loans. The Federal Deposit Insurance Corporation (FDIC) started a program called the Small-Dollar Loan Pilot Program to show that banks could make a profit by offering affordable, smaller loans. They started with 31 banks across the country, and they offered loans up to $1,000 with interest rates no higher than 36% (still much smaller than payday loans). They also allowed the borrowers to have longer payment periods than the typical time between paychecks.

This program only started in 2008, so it may be difficult to find a bank in your area that will offer this type of loan. Some banks will offer other small loans, but they could have requirements much like their other, larger loans (i.e. good credit, or a co-signer). If you have the option to take a loan through the FDIC program, it will be a much better option than a payday loan.

Credit Counseling
If you are in need of money right now, a consumer credit counseling service might not be able to help you, but they are available to help with your finances so that you will not need a payday loan in the future. There are countless consumer credit counseling agencies across the country that will help people who are in trouble figure out a payment plan with creditors or help them create a budget. These services are usually available for little or no cost.

Other Available Alternatives
There are a few other options available to those in bad financial situations, but you should be taking steps toward a sound financial future. If you want to make sure you don’t go further into debt, you should consider every option before you get a payday loan. Other options available to you include the following:

• Advances from employers – Some employers will give paycheck advances to employees. Because this is an advance, not a loan, there will be no interest rate. Therefore, it will be much cheaper than a payday loan
• Emergency assistance programs – You could try to find a community organization that will provide emergency assistance to those in need (i.e. the federal Low Income Home Energy Assistance Program)
• Borrowing from friends and family – You may feel too proud to ask your loved ones for money, but there are times when it will be better for you to swallow your pride and ask for help. You could even ask to work for the borrowed money by doing yard work or babysitting.
• Military loans – These loans will, obviously, only be available to those who are retired military personnel or are currently active in the military. Many companies offer loans from $500 to $10,000, and they could be up to 13 times less expensive than the typical payday loan because the annual percentage rates range from 33% to 35%.