Payday Loan Alternatives: 7 Options to Try

When you need cash right away but your next paycheck is days away, a payday loan can help. These short-term loans allow you to borrow from your future earnings. But to make these loans so accessible, payday lenders charge high interest rates and fees if you can’t pay them back quickly.

The amount you can borrow depends on your resident state and income rather than your credit score. But payday loans can trap you in a vicious debt cycle with steep interest rates that are hard to keep up with. Avoid this trap by exploring these payday loan alternatives, including Earned Wage Access apps like EarnIn, which give you access to your pay as you work without the interest or exorbitant fees.

The 7 best alternatives to payday loans

Traditional payday loans prey on borrowers with high fees and interest rates. Thankfully, various emergency loans and more innovative financial solutions like same-day pay offer similar advantages to payday loans without the excessive costs.

1. Payday Alternative Loan (PAL)

Aside from standard checking and savings accounts, some federal credit unions offer payday alternative loans (PALs). PALs charge a maximum annual percentage rate (APR) of 28%, which is significantly lower than the average payday loan APR of around 400%. Unlike payday loans, which have rigid term lengths averaging about 2 weeks, PALs offer flexible terms measuring between 1–12 months.

While PALs offer better terms and rates than traditional payday loans, some credit unions require an active account for a specific period before you can apply, meaning you have to be an existing customer to access them.

2. Credit cards

Credit cards can handle unexpected and day-to-day expenses. They charge lower interest rates than payday loans, provide a revolving credit limit, and offer potential perks like cashback rewards, travel benefits, or insurance protection.

With credit cards, you have two options: charging a bill to the card or getting a cash advance. Taking a credit card cash advance gets you money when you need it, giving you flexibility in where and how you make payments.

But you pay interest if you carry a balance on your credit card month-to-month. With an average APR over 20%, credit card payments can quickly spiral out of control and lead to debt, particularly if your card has a high limit. And cash advances often have a higher APR than a regular credit card purchase. These rates could make timely payments difficult and create a continuous debt cycle, where you pay interest monthly without ever reducing your balance owed.

3. Payment plans

Also known as buy now, pay later (BNPL) options, payment plans allow you to pay your creditor in installments rather than all at once. Breaking a debt into several smaller payments makes it easier to avoid late fees. Many online lenders don’t advertise if they offer payment plans but will agree to this arrangement upon request, so be sure to ask. You can either negotiate this when taking out a loan or about one you’re already paying back.

Remember that using a payment plan can extend the loan term and potentially incur higher interest rates and fees. Compare the costs charged by a payment plan and a traditional payday loan to decide which is the more affordable option before taking one out.

4. Earned Wage Access apps

A paycheck advance app, sometimes referred to as a cash advance app, is an online application that offers short-term loans. Like traditional payday loans, paycheck advance apps provide quick access to earnings once you provide proof of income. But paycheck advance apps usually charge lower fees and interest — if they charge it at all — and nonpayment most likely won’t lead to collections.

Some apps don’t offer access to the maximum withdrawal limit unless you have an established withdrawal history, which encourages you to use the app frequently to maximize your benefit, but can’t help you if you need more money in a pinch.

But with EarnIn, you can access a portion of your paycheck as you work, up to $100 a day and $750 per pay period. Plus. EarnIn doesn’t charge fees or interest for its service, meaning you don’t need to speed more to access money you’ve already earned.

Your company could also offer Earned Wage Access as an optional benefit through platforms like EarnIn to let you access money from paychecks before payday. EarnIn funds 100% of the cash employees access, giving employers a no-business cost benefit that works for everyone.

5. Personal loan

The personal loan is the most popular type of installment loan, due to its flexibility. People use personal loans for various reasons, including debt consolidation, home renovations, and vehicle financing. The best personal loans set themselves apart by offering fast approval, low or no origination fees, and rate discounts.

Unlike payday loans, personal loans require you to pass a credit check and meet income guidelines to qualify. If you do qualify, your loan terms vary based on your income and credit score, potentially making personal loans unsuitable for borrowers with a bad credit score. But a bad credit loan’s interest rate could be lower than payday loans, so see what terms you can get for a personal loan first.

6. HELOC loans

If you own property, a home equity line of credit (HELOC) is a revolving credit line that lets you borrow money from your home’s value. You can usually borrow up to 85% of your home equity, although this number varies depending on your lender.

Most people use HELOCs to pay off large expenses like home improvements, college tuition, or to start a business. To qualify for a HELOC, you must meet specific equity, credit score, and debt-to-income ratio thresholds (and own property). And unlike fixed mortgages, most HELOCs have variable interest rates, meaning your monthly payments could increase if interest rates go up.

7. Peer-to-peer loans

Peer-to-peer (P2P) loans let people borrow money from individual or commercial investors rather than through a financial institution like a bank. Also known as social or crowd lending, P2P lending cuts out the middleman and lets investors set rates and terms directly with borrowers.

P2P lending is highly flexible and often allows you to haggle with the lender to negotiate more favorable rates and terms. But this flexibility typically comes with higher interest rates and fees than traditional loans serviced by financial institutions.

How to choose the best payday loan alternatives

Choosing the best payday loan alternative requires careful research and analysis. Follow these steps to find the right option for your situation:

1. Compare costs. Check if a lender charges high interest rates and fees to keep your costs down and maximize your savings. It helps to research several lenders to find the best option for you.

2. Evaluate payment terms. Look for lenders that offer flexible terms and options like automatic withdrawals or extended payment plans.

3. Review ratings. Make sure that the lender is legitimate and has positive customer reviews and high ratings.

4. Understand conditions. Read and understand the loan terms and conditions before submitting your application.

5. Ask clarifying questions. Request additional information if you don’t understand the loan terms to clarify everything before signing.

FAQs

Can payday loans affect your credit score?

Payday lenders usually don’t report loans to credit monitoring companies. But if you fail to repay your loan on time, your lender may sell your loan to a debt collection agency. If this happens, the debt may appear on your credit report and late payments could negatively affect your credit score.

How do payday loans work?

When you take out a payday loan, the lender confirms your income (usually with a paystub) and advances you a portion of your future earnings. In exchange, you provide the lender with a post-dated check or permission to withdraw funds from your bank account to cover the loan when you get paid.

A typical payday loan requires you to fully repay the loan by your next payday or some other amount of time. This isn’t ideal because you won’t actually receive money on payday and might need to rely on credit until the next pay period, potentially creating a cycle of reliance on credit.

Is a payday loan secured or unsecured?

Payday loans don’t require you to put up collateral to qualify, making them unsecured loans. Rather than pledging assets to cover the loan, you agree to repay the lender with earnings from a future paycheck.

Avoid payday loans altogether and try EarnIn to access cash

With EarnIn’s Cash Out tool, customers can pay for emergency and routine expenses without worrying about the high fees or interest of payday loans. Access up to $100/day or $750/ pay period, with no interest, membership fees, or credit checks.

Download the EarnIn app to discover a smarter alternative to payday loans today.