Payday loans are not always the best option when you’re desperate for cash. The average interest rate is 391%, which is even more than some of the most expensive available credit cards.
Payday alternative loans are a common choice for those who want to avoid the pitfalls of traditional payday loans but still need cash. They’re available to almost any member of a credit union and can be a more affordable way to get money quickly.
A payday alternative loan is a short-term solution, and it’s important to know exactly what it entails. Read our guide to understand how to get one of these loans and what other alternatives exist.
Payday Alternative vs. Payday Loan
Payday alternative loans get their names because they are an additional option for those who don’t want to opt for a traditional payday loan. It’s important to understand the differences between these two options as they can be easily confused.
The fees for a payday loan are usually higher, leading to more money lost overall. The government regulates the fees for a payday alternative loan, ensuring that banks don’t overcharge.
Traditional payday loans can result in consistent debt. 76% of the loans are rollovers that can leave borrowers in a cycle of endless debt repayment.
Payday loans require a lump sum of payment that most borrowers can’t afford. Half owed fees for overdrafts and returned checks within 18 months of opening the loan at an average cost of $185.
Payday loans are risky, with a 1 in 5 rate of default.
Payday alternative loans are a safer, cheaper, more effective way to obtain cash quickly. They don’t involve as much risk and are highly regulated, ensuring that borrowers know what they’re getting into.
What Are Payday Alternative Loans?
To know whether a payday alternative loan is the best option for you, it’s important to understand exactly what it is.
Payday alternative loans are short-term, lower-interest alternatives to traditional payday loans.
Payday alternative loans are for situations where a person needs a small sum of money immediately. They are more versatile and customizable because more institutions offer them.
It’s necessary to become a member of a credit union before applying for a payday alternative loan. This is not a difficult process, making the loans accessible to most borrowers.
There are various regulations and terms for repaying and receiving payday alternative loans. They regulate how much money can be taken out, how often, and what fees can be charged. Borrowers must know these requirements ahead of time.
What a Payday Alternative Loan Entails
Getting a payday alternative loan is not difficult for any member of a credit union. It’s important to know the steps to take ahead of time and what to expect in terms of requirements, cost, and repayment.
There are requirements to meet to become eligible. Like other payday loans, you must first be a member of a federal credit union. If you have been for at least a month, you are eligible.
According to the law, there is a minimum and maximum amount allowed for a payday alternative loan. The loan can be no more than $2,000 and no less than $100.
There is also a specific term for which the loan can be taken out. Since a payday alternative loan is a short-term solution, it can only last for up to 6 months. The repayment term ranges from 1-6 months.
There is a limit on the number of loans a borrower can take out in a specific time period. The current limit is no more than 3 loans every six months. This keeps borrowers and lenders from abusing the system.
A payday alternative loan can still require a fee of up to 15% to set up and an APR of 20-30%, but this is far less than a traditional payday loan.
Application processing fees are capped at $20. Other fees exist, such as other application fees and membership or processing or origination fees. These can be more than $20 and must be factored into the overall cost.
The legal regulations for payday alternative loans continue to change as new legislation is proposed and passed. The point of the requirements is to ensure that every borrower can get their money at a fair price.
Other Payday Loan Alternatives
There are various options when a borrower requires quick money. It’s important to understand each type of alternative loan to determine which is the best choice.
Other alternatives besides payday alternative loans include payment plans, personal loans, credit card cash advances, paycheck advances, and 401K loans. They still provide the necessary cash but may not be the best choice for every borrower.
The abundance of alternative loan options can make it difficult to choose the best one for you. There are various reasons why a payday alternative loan may be the best choice.
When a person takes out a loan, they need cash and want to pay as little as possible to get it. Other options like traditional payday loans and personal loans can require much higher fees and interest rates than payday alternative loans.
Another disadvantage to other types of loans is that they often require putting up valuable objects like vehicles as collateral. This can lead to losing these important possessions.
Payday alternative loans are effective, affordable solutions in most situations. Check here for more information on different types of loans and how to choose the best one for you.
Where to Find Payday Alternative Loans Online
Payday alternative loans are a cheap and simple way to get quick money while avoiding the high interest rates of a traditional payday loan.
It’s important to know exactly what a payday alternative loan is and how to get one before taking one out. It’s also necessary to weigh it against other alternative loan options to decide if it’s the best choice for your specific situation.
Searching for payday alternative loans online leads to various options, and it can be difficult to choose the best one. We offer affordable, effective loan services for all borrowers.