Ten Alternatives To A Payday Loan

It’s common to find yourself stuck in a situation where your expenses have grown a little too big for your paycheck.  When that happens, it is easy to look for a fast and simple solution to your problem.  Fast and simple solutions are rarely permanent solutions, and often they make the overall problem worse.  This is true of payday loans, those short-term, high-cost loans that are so easy to get.  A payday loan might fix your immediate cash problem, but a majority of payday loan customers find it hard to escape from the spiral of fees and costs.

If you’re in a cash crunch, here are ten better alternatives to a payday loan:

Military Relief Societies

Every branch of the military has a relief society, and they offer grants and loans for a wide variety of needs.  Relief societies include:

• Navy-Marine Corps Relief Society,
• Army Emergency Relief,
• Air Force Aid Society, and
• Coast Guard Mutual Assistance.

If you just need a small loan to get you through a bad patch, each aid society offers a speedy, interest-free loan program for small amounts ($500 to $1000.)  If you’re not near an office of the aid society for your branch, then you can obtain help from the nearest aid society.

For larger situations, the aid society may be able to offer a larger loan, or even a grant that does not require repayment.  These usually take a little more time to process, and may come with financial counseling to ensure that you can make the repayments without creating additional hardship.

Relief society help should be your first choice when you find yourself in a pinch. Their interest- and fee-free loans are designed to be easy to repay.   You may also find that you are eligible for a grant program that doesn’t require repayment.

ARK Loan

The PenFed Foundation offers a loan very similar to those offered by the military relief societies.  It is called an Asset Recovery Kit (ARK) loan.  These loans are available to currently serving active duty, reserve, and National Guard members.  You do not have to be a member of Pentagon Federal Credit Union to receive an ARK loan.

ARK loans have a $5 administrative fee, and no interest for one month.  You can borrow up to $500, and it is completely confidential.  PenFed Foundation ARK loans are available at select credit unions locations around the world.

Working With Creditors

If you’re in a financial pinch, it is always a good idea to open the lines of communication with your creditors.  In many cases, you may be able to work out some sort of temporary plan.  A payment plan may not impact your credit or increase your interest rate.  This might give you the time and space to get back on track.

Credit Union Loans

Credit Unions, both big and small, offer personal loans for a wide variety of amounts.  The interest rate may be relatively high (currently ranging between 10% and 18%) compared to other products, but personal loans are still significantly less expensive than payday loans.

Credit Card Advances

A cash advance against a credit card isn’t a good long-term strategy for budget management, but it might be a good choice in a drastic situation.  You’ll probably pay a cash advance fee, often between 3% and 7%, and then you’ll start paying interest immediately, or you may pay a higher interest rate on cash advances.  However, these “high” interest rates are still significantly less than the interest and fees on payday loans.

Paying Late Fees

For many bills, the late fees are relatively small.  For example, utility bills typically charge only a few dollars in late fees each month.  Paying a small late fee is preferable to paying a large loan fee to a payday lender.

If using this strategy, be sure that you are mindful of your credit score.  Working with your creditors (see above) is a good way to figure out how to pay a little late without messing up your credit.  However, even a late payment on a credit report is still a better option than getting stuck in a payday-lending cycle that can’t be escaped.

Good Overdraft Protection

Overdraft protection on your bank account comes in a variety of types, each with its own costs, fees, and interest rates.  “Good” overdraft protection, with low or no fees beyond the interest rate, will be less expensive than a payday loan.

Finding Fast Cash

There are thousands of safe and legal ways to find or earn a little extra money quickly.  You may find that none of these will work for you, but you might be surprised.  More importantly, just a small amount of extra income each month might help you avoid being in a situation. where you need to get a payday loan.

Borrowing From Family

This is a touchy subject, but sometimes the best solution is the most obvious:  If you have family who can afford to give you a short-term loan, they may be your best resource.  Be sure to explain how you plan to repay the loan, and then stick with it.  This will solve your problem and impress them with your responsibility.

Advance Pay or Casual Pay

I don’t have any experience with this thing called “casual pay,” but I have heard that it is a way that military members can get a small advance on their next paycheck.  This has to go through the command.  If you know more, please share with me.

Advance pay is typically authorized in conjunction with a PCS move.  A service member can request one, two or three month’s pay in advance, to be paid back over one or two years.  If your current financial crunch is at all related to a PCS move, see if advance pay might be available IF you can maintain the repayments.

Everyone should do whatever they can to avoid any loans that might fall into the “payday loan” category:  loans with very high fees, high interest rates, and unfavorable terms that can create a situation where repayment is very difficult or even impossible.  Hopefully, these ten options will help you avoid the payday loan trap.