Payday Loan Alternatives: Options to Consider First

Running short before your next paycheck is stressful, and a payday-style loan can look like the simplest way through. Before you decide, it helps to know how these loans work and what else is out there. This guide covers payday loan alternatives in plain language so you can compare your choices calmly. It is general education, not personal financial advice, and your situation may call for something different.

Why payday-style loans can cost more than they seem

A payday-style loan is a small, short-term loan meant to be repaid from your next paycheck or deposit. The idea is simple. The cost and the timing are where people tend to get caught off guard. Three things are worth weighing.

• Cost of borrowing. These loans are usually priced as a flat fee per $100 borrowed. Federal law still requires the lender to show that cost as an annual percentage rate (APR) in writing, and because the loan is so short, a fee that looks small can work out to a much higher annual rate than most other borrowing. The CFPB, covered below, explains how these loans are typically structured.
• Repayment timing. Repayment is often due in one lump sum on a set date. If your next paycheck is already spoken for by rent, bills and groceries, a lump-sum repayment can leave you short again.
• Rollover risk. If you can't repay in full, some lenders let you extend or renew the loan for another fee. The original amount is still owed, and the fees can repeat. Some states prohibit payday-style loans or cap their fees, and rules on rollovers vary by state and by lender.

A simple illustration

The numbers below are illustrative and are not a quote from any lender. The CFPB uses a similar $15 per $100 example on the page linked below.

Say a lender charges a $15 fee to borrow $100 for two weeks. Repay on time and you've paid $15 to use $100 for two weeks, which is 15% of the amount borrowed. Now say the loan is extended for another two weeks with a second $15 fee. You've paid $30 in fees and still owe the original $100.

A modest-looking fee can add up when it repeats. That's why it helps to compare the total cost in dollars and the exact repayment date, not just the headline fee. If you want a refresher on how annual rates are expressed, see our guide to understanding APR.

Pro tip: Before you borrow from anyone, ask for two things in writing: the total cost in dollars and every date a payment is due. If a lender can't or won't provide them, treat that as useful information.

Payday loan alternatives to consider

Each option below comes with its own tradeoffs, and the organizations and lenders involved set their own terms. MoneyWell is not a lender and does not make credit decisions, so think of this as a checklist of places to ask, not a recommendation.

Credit union small-dollar loans

Credit unions are member-owned financial cooperatives, and some offer small loans designed for people who need a modest amount of cash. Some federal credit unions run programs often described as payday-alternative loans. Details differ from one credit union to the next, so the best step is simply to ask.

Questions worth asking a credit union:

• What small-dollar loan programs do you offer? Using the words "small-dollar" or "payday-alternative" helps staff know what you mean.
• Is there a membership step first? Some credit unions ask you to join before you borrow.
• What is the total cost and the repayment length?
• How is the loan reported? Ask whether on-time repayment is reported to the credit bureaus. Results vary by lender.

Personal installment loans

Many lenders offer personal loans that you repay in scheduled installments over a set term, instead of one lump sum on a single date. Spreading repayment over time can make the schedule easier to plan around, but it also means you may pay interest for longer.

Lenders set their own rates, fees and terms, and what you're offered depends on the lender and your own situation. Results vary. When you compare, look at:

• The annual percentage rate (APR), which is meant to reflect the yearly cost of borrowing including certain fees.
• Fees, such as an origination fee taken from the amount you receive.
• The term, meaning how long you'll be repaying. A longer term can lower each payment but raise the total interest.
• What happens if you pay late or pay off early.

Read the lender's disclosures carefully, and confirm it is licensed in your state.

Employer pay advances

Some employers offer a way to receive part of the pay you've already earned before your regular payday. This may be handled by your employer directly or through a payroll service the company uses. Not every employer offers this, so the simplest approach is to ask your manager, human resources or payroll team.

If one is available, find out:

• How it's repaid. Often the amount is deducted from a later paycheck, which means that paycheck will be smaller.
• Whether there are fees. Some programs are free to the employee and some charge for the service.
• How often you can use it. Repeated advances can leave each paycheck shorter than the last.

Payment plans and hardship arrangements

Sometimes the reason you're looking for cash is one particular bill: a utility, a medical charge, rent, a car payment or a credit card. In that case, the most direct alternative may be to talk to the biller before the due date passes.

Many billers have payment plans, extended due dates or hardship programs. Whether yours does, and what the terms are, varies. Medical providers and hospitals, for example, often have a billing office that can discuss payment arrangements or financial assistance policies. Utilities may offer budget billing or a way to spread out a past-due balance.

When you call, it can help to:

• Ask specific questions. Can the due date move? Can the balance be spread out? Will late fees pause while an arrangement is in place?
• Get the agreement in writing. Keep a copy of whatever the biller sends you.

Pro tip: Billers are often more open to talking before an account falls behind than after. Even so, results vary, so ask what's possible rather than assuming an answer.

Local assistance and nonprofit credit counseling

Community groups, charities, faith-based organizations and local agencies sometimes offer help with essentials such as utilities, food or rent. Programs differ by area and can change, so ask what's currently available near you.

Nonprofit credit counseling agencies are a different kind of help. A counselor can review your full budget with you, talk through your bills and debts, and explain the options in your situation. Some also offer debt management plans. Before you sign up with any agency, ask:

• Is it a nonprofit organization?
• What does it cost, if anything? Get the fees explained in writing.
• What services are included? A budget review is different from a repayment program.

If a larger pile of debt is behind the cash shortfall, you may also want to read about debt relief options to understand the range of approaches that exist.

Other things to think through

Two other sources come up often, and each has downsides.

• Credit card cash advances. If you have a credit card, a cash advance is a different product from a regular purchase. Cards commonly charge a fee and begin charging interest right away, often at a different rate than purchases. Check your card's terms before relying on one.
• Family or friends. Borrowing from someone you trust can cost less in dollars, but it can strain relationships if expectations aren't clear. Agree on the amount and timing, and write them down.

How to compare your options

No single option fits everyone, but a few questions apply to almost any choice:

• What is the total I'll repay, in dollars? Not just the fee or the rate.
• When is each payment due, and can I realistically make it?
• What happens if I'm late or can't repay? Ask about late fees, extensions and any extra charges.
• Does this get reported to credit bureaus? Depending on how it's reported and handled, it can affect your credit either way.
• Does anyone want money before the money arrives? Be cautious with any offer that asks for an upfront fee before you receive funds, or that pushes you to decide on the spot.

Where the CFPB fits in

The Consumer Financial Protection Bureau (CFPB) is a US government agency that publishes plain-language information about borrowing. Its page on payday loans is a good place to read more about how they work. If a financial company treats you unfairly, you can also submit a complaint to the CFPB.

FAQ

What are some alternatives to payday loans?

Common alternatives include credit union small-dollar loans, personal installment loans, employer pay advances, payment plans with the biller, and help from local assistance programs or nonprofit credit counselors. Costs and terms differ, so compare them before choosing.

Is a credit union small loan different from a payday loan?

They can be structured differently, but the details depend on the credit union. Some offer small-dollar or payday-alternative loan programs with their own terms. Ask about the total cost, how long you would have to repay and whether there is a membership step.

Does MoneyWell lend money?

No. MoneyWell is a comparison and referral site, not a lender. It doesn't make credit decisions, and lenders set their own rates and terms. Any loan agreement is between you and the lender.

What should I compare before borrowing anywhere?

Compare the total cost in dollars, the repayment schedule, the fees, and what happens if you're late or can't repay. Also check that the lender is licensed in your state.

Where can I learn more about payday loans?

The CFPB publishes free, plain-language information about payday loans at consumerfinance.gov. A nonprofit credit counselor can also walk through your options with you.

If you decide a loan is the right next step, you can compare personal loan options and see what terms lenders offer before you commit.