6 ways to avoid payday loans


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Ask a Lender
May 25, 2017 | Updated September 22, 2017


Key Points

6 ways to avoid payday loans

  1. Personal loan
  2. Compare offers
  3. Make arrangements with creditors
  4. Credit counseling
  5. Better budgeting 
  6. Overdraft protection

With bills piling up before pay day, you may feel like you have no other choice but to take out a payday loan to avoid an influx of late fees. But have you fully explored all your options? Payday loans are an expensive option. These short-term loans of about $500 or less typically must be repaid on the borrower’s next pay day.

The Consumer Financial Protection Bureau (CFPB) announced new regulations in October 2017 that would make it more difficult for people to take out payday loans if they can't afford to pay them back within 30 days. The regulations are slated to take effect mid-2019, although it's possible Congress could nullify the regulations before they take effect.

The Federal Trade Commission recommends consumers take a look at the following alternatives to, and options for, avoiding payday loans when they’re in need of fast cash.

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1. Personal loan

Consider taking out a small personal loan from a credit union or small loan company. Traditional lenders may offer small, short-term loans at competitive interest rates. Credit cards also may offer cash advances, although these may come with a higher interest rate than other financing options, so make sure you read the fine print.

2. Compare offers

Shop for the credit offer with the lowest cost. Compare the APR and the finance charge, including loan fees, interest and other credit costs, in search of the best terms. Other credit offers may come with lower rates and costs than payday loans. 

3. Make arrangements

Contact your creditors or loan servicers and ask for more time to make your payments. They may be willing to work with you if they believe you’re acting in good faith. See if they offer to make an extension, but make sure you also find out what charges may be included, such as a late charge, an additional finance charge, or a higher interest rate.

4. Credit counseling

Contact a credit-counseling service to help work out a debt-repayment plan with creditors, or to help develop a budget. Nonprofit organizations in every state offer credit guidance to consumers for free or at a low cost.

5. Better budgeting

Make a realistic budget, including both monthly and daily expenditures. Avoid unnecessary purchases, because the cost of small, everyday items like a cup of coffee can add up. Also try to save money. Even small deposits into a savings account add up over time, giving you a stash of cash you can turn to in an emergency instead of costly payday lenders.

6. Overdraft protection

Find out if your bank offers overdraft protection and, if so, what the terms and fees of such protection are. Avoiding overdrafts can help you avoid further financial problems that might tempt you to take out a payday loan.

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