Unexpected expenses sometimes precipitate payday lending, and although finance industry professionals are increasingly aware of payday loan alternatives, many people turn to what’s familiar first. However, the long-term costs and short repayment period of payday loans may make it more difficult for borrowers to recover from a cash flow emergency.
Instead, personal finance advisors can recommend other loan options with lower fees, fixed repayment terms and less frequent payment schedules. These recommendations can help borrowers avoid cash flow crunches and compare payday loans to other borrowing options.
What to Look for in Payday Loan Alternatives
The high cost of payday loans is one reason there are non-predatory alternatives. According to the Consumer Financial Protection Bureau (CFPB), the APR would be nearly 400% on a two-week payday loan with a $15 per $100 borrowed interest rate.
Given these costs, financial advisers typically recommend that borrowers compare loan terms, repayment schedules, application processes and other factors before choosing a short-term credit product. Installment, flexible or wage-advance products can help potential borrowers bridge short-term cash flow gaps without entering high-cost payday loans or other high-cost consumer credit arrangements.
Businesses Providing Payday Loan Alternatives
Many lenders offer structured installment loans or cash access that can offer better terms than a payday loan. The following are potential substitutes for payday loans for a borrower seeking short-term credit.
1. Atlas Credit
Atlas Credit provides personal loans as an alternative to payday loans for borrowers with low credit scores, with more formal loan requirements. Atlas Credit offers consumer loans that people can apply for online or in one of the company’s branch locations. The consumer loan product is available to individuals with an immediate need and a predetermined repayment plan. These personal loans may help the borrower meet an emergency or reduce the lump-sum payment on a payday loan.
Key Features
- Borrowers can apply for loans online and in person at physical locations
- The process takes only a few steps
- Applicants are usually informed quickly if accepted
- Services are accessible via online tools and in various physical locations
2. EarnIn
Earned wage access platforms are a modern financial technology response to short-term cash need. EarnIn lets workers access a limited portion of the income they’ve already earned before payday, without interest, in exchange for optional tips and service transfer fees. It is an alternative to a loan for those who are paid regularly, providing short-term liquidity against future income.
Key Features
- Access to earned wages before payday
- No interest charges
- Mobile app-based account access
- Optional expedited transfers
3. Patelco Credit Union
Many credit unions have begun offering small-dollar lending products that serve as alternatives to payday loans. Patelco Credit Union offers small personal loans with capped finance charges and periodic repayment terms. As member-owned cooperative financial institutions, credit unions typically offer products that focus on borrower affordability. Such programs may interest customers who are already working with a credit union or are considering joining one.
Key Features
- Lower rates than many payday products
- Structured installment repayment plans
- Small-dollar loan options
- Eligibility requires a credit union membership
4. Oportun
Installment lenders can also offer an alternative for consumers seeking small loans with a repayment plan. Oportun issues personal loans to people with no or low credit history. These are installment loans with a set repayment schedule, in which the borrower pays the principal amount in scheduled allotments. It can make repayments easier for consumers who need more time to repay their loan obligations.
Key Features
- Fixed installment payment structure
- Loans for borrowers with limited credit history
- Application is via an online form
- Convenient repayment schedules
5. Chime
Some digital banking applications also include short-term account support tools‚ a payday loan alternative that is informal. Chime offers a service called SpotMe, which automatically allows qualifying users to overdraw their accounts without fees up to a certain limit. SpotMe users receive an increased advance limit, which is not a loan. Instead‚ SpotMe covers small negative balances until the next deposit. For users of mobile banking apps‚ this tool can provide a reprieve.
Key Features
- Fee-free overdrafts for qualifying account holders
- Integrated into mobile banking accounts
- No credit check required
- Automatic repayment once deposits are received
Frequently Asked Questions
Why do financial professionals recommend alternatives to payday loans?
Most payday loans are short-term and have such high fees that borrowers may be unable to pay them off on the due date without taking out a new loan.
What is the most common form of payday alternative loans?
Small personal installment loans are among the most common alternative loans because borrowers can pay them off in installments rather than a lump sum.
Are payday loan alternatives easier to pay off?
Other variants use structured repayment schedules or wage-based access models, which may provide borrowers with more predictable repayment schedules.
Do you need good credit for payday loan alternatives?
Not always — some lenders consider additional factors, and not all types of financial applications require a credit report or credit score check.
Evaluating Payday Loan Alternatives
Finance experts have advised consumers to compare the payment structure, repayment terms and access to funds when comparing payday loan alternatives. Examples of alternative products include installment loans, branded credit union lending programs, earned wage access products and structured personal loans, which can provide short-term financing to consumers at lower cost.
