Editorial Note: We earn a commission on partner links on Forbes Advisor. Commissions do not affect the opinions or ratings of our editors.
If you need money quickly to cover an emergency or essential living expenses, you might be tempted to take out a payday loan.
These loans are often easy to get – some lenders won’t even check your credit score. However, due to their exorbitant fees, which can amount to annual percentage rates (APR) as high as 400%, you should avoid this type of loan. You should only use it as a last resort.
Consider one of the nine payday loan alternatives below to keep more of your hard-earned cash.
1. Apply for an alternative payday loan
Some federal credit unions offer Alternative Payday Loans, which are loans designed to provide a lower cost alternative to payday loans. With this option, you can borrow up to $2,000 and the term of the loan varies from one to 12 months. The maximum interest rate is 28%, which is much better than what you usually see on a payday loan.
For example, here is an overview of the maximum percentage rate allowed for payday loans by state based on a $100 loan over 14 days.
To be eligible for an alternative payday loan, you must be a member of a federal credit union who offers this type of loan.
2. Borrow from a credit union
Unlike traditional banks, credit unions are member-owned, not-for-profit institutions. For this reason, you may find cheaper rates at a credit union for credit union personal loans and other types of loans. Additionally, credit unions generally have less stringent eligibility requirements than traditional banks, so you may qualify to borrow money with less than stellar credit.
Like an alternative payday loan, this option requires you to be a member of a credit union.
3. Apply for a bad credit loan
If your credit score falls within the fair credit score range (580 to 669), according to the FICO credit score model, you may qualify for a bad credit loan. Lenders who offer bad credit loans may approve applicants with credit scores as low as 580. To qualify for a loan with a score below 580, consider using a co-borrower or co-signer, if the lender allows it.
In addition to your credit score, lenders will base your eligibility on other factors, such as your income and debt-to-income ratio (DTI). Although you probably won’t get the best interest rate with a fair credit score, lenders usually have a maximum interest rate in the mid-30s. that you would get with a payday loan.
Before applying, prequalify with multiple lenders, if possible, to get an idea of the interest rate and terms of your loan before applying. Be prepared to provide personal information, such as your income, Social Security Number (SSN), and date of birth when you complete the official application process.
4. Form a Lending Circle
To help pay for future unexpected expenses, consider forming a lenders’ circle. A lender’s circle is where a group of people set aside a certain amount of money each month and pool it together. According to the loan agreement, one member can borrow the full amount one month, while another can borrow the full amount later.
You can join a Lending Circle online or create a Lending Circle with family and friends. Some online lending clubs report member payments to all three credit bureaus, which can improve your credit score.
5. Borrow from friends and family
Another way to avoid the high interest rates and fees of payday loans is to ask family members for family loans or borrow money from friends. It may also be easier to get the money you need since you don’t have to go through the official application process.
Once the family member or friend agrees, you need to create a loan agreement, which should include repayment terms and the interest rate (if applicable). An important note: Repay the loan on time to maintain a healthy relationship with the family member.
6. Get help with bills through payment plans
If you’re having trouble paying your bills, ask the supplier if you can set up a payment plan. This way you can avoid having to pay the bill in one installment. Some lenders may have a forbearance or deferment program in place to help you get through the tough times.
With this option, keep in mind that you will likely have to pay interest and fees. However, the interest and additional fees may be worth paying if they help you avoid taking out a payday loan.
7. Create alternative ways to earn money
Increasing your income could save you from taking out a payday loan. Although making more money is easier said than done, plenty of opportunities exist both online and offline. Some online opportunities include freelance writing, conducting surveys, and beta testing apps and websites. Offline opportunities include driving for DoorDash or Uber, selling used items at a garage sale, and working part-time on the side.
8. Use a credit card responsibly
Another way to avoid the high interest charges and fees of a payday loan is to use a credit card responsibly. This means using your credit card only for purchases that you can afford to repay by the due date. Paying your balance in full on or before the due date can help you completely avoid interest charges, late fees, and possible damage to your credit score.
Also, if you have a credit score of 700 or higher, you may qualify for a 0% APR credit card. This type of card comes with an interest-free promotional period that lasts up to 21 months. As long as you pay the balance owing before the promotional period expires, you can avoid interest. Thereafter, the remaining balance will accrue interest charges until it is fully paid off.
9. Apply for financial aid programs
Depending on your income, you may qualify for financial assistance programs in your area. Some programs may provide rent assistance, while others may help pay for food and other expenses. To find these programs, consider contacting your local library or chamber of commerce.
If you want to avoid the exorbitant costs associated with a traditional payday loan, choose another financing option from this list. Compare each option and assess which is best for your specific situation. The most cost-effective option you qualify for is probably the one that’s right for you.