3 Alternatives to Payday Loans

Taking a payday loan should be a method of last resort. Payday loans have abnormally high interest rates. Often, borrowers get themselves into a cycle of debt when taking these risky loans because they cannot afford to pay the cost of financing without taking another loan. Further, payday lenders are known for being unethical. In fact, payday lending has been made illegal in several states. Instead of seeking a pay day loan, consider other alternatives to make financial ends meet.

Debt Negotiation

Many people take payday loans because they have other debt in urgent need of being paid. These urgent needs, such as medical bills or loans approaching default, can leave many people feeling they are out of options. However, it is possible your lender will be willing to work with you to keep your loans from going into default. Especially in a bad economy, many lenders, doctors’ offices, landlords and even utilities companies will help you make a payment schedule for your bills. Instead of ignoring collections calls, try speaking with your lender to explain your financial situation. See if the lender will be willing to accept a delayed payment. You may even offer the lender the opportunity to garnish your wages, especially if you are in debt to a tax organization or court ordered payments. 

Secured Loan

If you need cash fast and negotiating will not work, there are other loan options instead of payday loans. You may try securing a loan against one of your assets in order to receive financing. This means you will have to place an asset as collateral with a lender. Any asset is usually sufficient, and this includes stock and savings as well as hard assets. Traditional lenders will not often work with individuals without credit or with low credit scores. Even not having and income can prevent you from receiving a loan. In order to secure a loan in these situations, you can provide the lender assurance against your default by placing collateral down. This keeps interest rates slightly lower than other forms of loans.

High Risk Personal Loan

When you cannot secure a loan against an asset, you may explore options for high risk personal loans with high risk lenders. It is not likely you will be able to secure a loan with bad credit, no income and no collateral with a traditional lender. Instead, you will need to work with a lender specifically interested in high risk loans. While this is nearly as risky as payday loans, the interest rates on high risk personal loans are still traditionally lower than those from payday sources. Another key benefit to securing a high risk personal loan is the affect the loan will have on your credit score when paid off. Payday lenders rarely report your loan success to credit bureaus. High risk lenders, though, will usually report the loans. This means you will be able to see your credit score go up as you make your monthly payments. If you are going to pay a high interest rate, it makes sense to choose the option that will raise your credit.

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