Alternatives to Payday Loans

Payday lenders are not the only option for consumers facing debt problems.There are many alternatives to payday loans such as: small savings accounts or rainy-day funds; salary advances from employers; credit card advances; working out extended repayment plans with creditors; and loans from friends, relatives, religious institutions, or social service agencies.  In addition, many lenders have developed lower-cost alternatives to payday loans that have better repayment terms.

Responsible Small Loans

Alternatives to payday loans should have these features:

  • At least a 90-day repayment term, repayable in installments;
  • No personal check mechanism or other unfair collateral (such as a car title);
  • Reasonable limits on renewals (If borrowers are renewing short-term loans more than four times per year, the loans are not helping them);
  • Full consideration of borrower's ability to repay the loan;
  • No mandatory arbitration clause.

With payday alternatives, borrowers pay late fees or penalty fees only one time. The "debt trap" forces payday loan borrowers to pay fees every two weeks. In the end, revolving payday loan fees increase debt loads and financial hardship, leading people into bankruptcy rather than helping them get back on their feet.

Payment Plan with Creditors

The best alternative to payday loans is for consumers to deal directly with their debt. Many creditors will negotiate partial payments if a payment plan is in place. Working out a payment plan with creditors can allow the consumer to adjust billing to pay off bills over a longer period of time.

Advances from Employers

Some employers grant paycheck advances to employees. Because this is a true advance, and not a loan, there is no interest and the advance is therefore cheaper than a payday loan.

Consumer Credit Counseling

There are various consumer credit counseling agencies throughout the country that can help consumers work out a debt repayment plan with creditors or develop a budget. These services are available at little or no cost. Contact a nationally accredited consumer counseling agency in your area by calling 1-800-388-2227 or visiting

Emergency Assistance Programs

Many faith-based groups and community organizations provide emergency assistance, either directly or through social services programs. For example, in partnership with state agencies, the federal Low Income Home Energy Assistance Program provides financial assistance to low-income households that are in a heating or cooling (weather) related emergency. A household that applies must: have at least one U.S. Citizen or a non-citizen who meets certain eligibility criteria; meet an income test; and be in a heating or cooling related emergency.

Credit Union Loans

Many credit unions offer small, short-term loans to their members. For example, North Carolina State Employees' Credit Union offers members a salary advance loan at 11.75% annual interest -- 30 times cheaper than a typical payday loan. Some credit unions also offer free financial counseling and a savings plan to help members get back on their feet. Many other credit unions offer very low interest rate loans (prime to 18% annual interest) with quick approval on an emergency basis. Unlike payday loans, these loans give the borrowers a real chance to repay with longer payback periods and installment payments.

Cash Advances on Credit Cards

Credit card cash advances, which are offered at about 30% APR, are much cheaper than getting a payday loan. Some credit card companies specialize in consumers with financial problems or poor credit histories. Consumers should shop around and not assume they do not qualify for a credit card. Secured credit cards are another option. A secured credit card is tied to a savings account. The funds on the account 'secure' the amounts charged on the card. Once a consumer has successfully used the secured card for a period of time, they can then qualify for a regular unsecured credit card.

Small Consumer Loans

Small consumer finance companies offer small, short-term loans that cost up to 60% APR, usually in the range of 25-36% APR. These loans are also much cheaper than payday loans; a person can borrow $1000 from a finance company for a year, and pay less than a $200 or $300 payday loan over the same period.