If you need to borrow money and are thinking of getting a payday loan, it’s important to consider all of your options. Although they can be very easy to set-up and take-out, a payday loan can quickly turn into a problem debt for many people.

Some alternatives to a payday loan which can be found in this guide include borrowing from family, friends or your employer, using a credit card or overdraft, applying for a PAL (Payday Alternative Loan) or a “bad credit loan“.




Alternatives to a payday loan for you to consider


Borrowing from a friend or family member


In certain situations, borrowing money from a family member or close friend may be a more suitable option for you than taking out a payday loan. Although there are certain stigmas attached to asking someone you are close to for money, the likelihood is that someone who cares about you may want to help you avoid the interest charges that come with a loan.

However, regardless of the interest rate you decide on – if you do decide on an interest rate, that is – make sure to put your loan agreement in writing. This contract should include the amount of money you’re borrowing, the interest being charged or the collateral being used, the payoff period, and the payment amounts and due dates.

Make sure to avoid borrowing from people who you don’t know well, such as casual acquaintances, friends of friends, or people you recognise from your local community.

It is important to remember that failure to repay a loan of this type may not hurt your credit, but it can result in legal action and a severed friendship or strained family relationship.


Using a credit card


If you’ve got a credit card, consider using it for purchases. However, you should make sure you pay back as much as you can each month, to keep costs down. And don’t be tempted to spend more than you can comfortably afford to repay.

It’s not a good idea to use a credit card to withdraw cash because you’ll be paying interest from the day of the withdrawal, even if you pay the bill off in full. You might also be charged at a higher rate of interest than on purchases.

You may even be able to apply for a low-interest credit card (or at least a card with an APR that’s considerably lower than the APR for a payday loan). However, you’ll typically need good credit or better to qualify for a credit card with a low interest rate.




You could look into using an Authorized Overdraft


If you have a current account, you might be able to access an authorized overdraft from your bank.

There are some interest-free overdrafts, but others can be expensive. However, going into an authorized overdraft can be cheaper than using a payday loan.

However, you should ensure that you stay within the overdraft limit, as slipping into an unauthorized overdraft can be very expensive and lead to severe money difficulties.


Borrowing from your employer


Many large companies and organisations have systems in place to offer financial support to their employees for when they need it most. This could involve an advance on your paycheck, or an interest-free, low-cost loan until you are financially stable again.

Financial assistance schemes are relatively common, and in the wake of the COVID-19 pandemic, many employers are looking for ways to support their employees in light of the financial hardships caused by the pandemic and the related quarantine.

Financial assistance schemes are designed to help loyal members of staff if they need extra money for such things as medical bills (for themselves or their loved ones), funeral costs and care or even a loss of home or accommodation due to unexpected circumstances. You may find that the repayments are taken out of your next pay cheque or drip fed out of multiple pay cheques in the future. But either way, it is good to know that there is assistance available if you need it.




Applying for a PAL or a “bad credit” loan


Credit unions that are members of the National Credit Union Administration offer payday alternative loans (PALs). You could use money from a PAL to avoid a payday loan or to pay off an existing one. Lower-cost PALs give a borrower more time to pay off a loan than a payday loan does.

A credit union can charge an application fee of up to $20 for a PAL. PAL amounts can range from $200 to $1,000, with the payoff period lasting one to six months. As many as three PALs may be given to the same borrower during a six-month period, as long as no PAL overlaps or rolls over.

Instead of getting a payday loan, you may be able to qualify for a “bad credit” personal loan, subject to a routine credit check. A number of lenders offer these loans for amounts that range from $500 to $10,000. However, APRs can commonly be quite high, and you may wind up paying an origination fee or other charges too.


Overall, a payday loan has its perks and may sound like the ideal solution to your money difficulties, however, you should certainly consider alternative ways to resolve your financial circumstances before deciding to proceed with a payday loan. We all want the confidence of knowing that we are making a wise financial choice.


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