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When you need cash quickly and have limited options to access it, a payday loan might seem like a solution. A payday loan is a short-term, high-interest personal loan, usually for a small amount, due on your next payday. While the idea sounds simple enough, such loans are extremely risky and often offered by untrustworthy lenders.
According to the Consumer Financial Protection Bureau (CFPB), a typical two-week payday loan with a $15 per $100 fee equates to a nearly 400% APR. That means if you borrow $200, in two weeks you'll owe $230. Often, payday loan borrowers can't come up with enough money in such a short time, so they keep extending the loan, paying exorbitant fees. To manage the growing debt burden, some take out additional payday loans, becoming stuck in a toxic debt cycle.
To avoid finding yourself in such a situation, consider safer loan options. CNBC Select looked for personal loans with a minimum amount of under $1,000 and 24-hour funding (learn more about our methodology). Here are the best alternatives to payday loans we have found.
Annual Percentage Rate (APR)
Up to 35.99%
Quick cash, home improvement, deposits and more
$300 to $8,000
12 to 53 months
No credit history required
Early payoff penalty
Depends on the loan terms
Who's this for? If you're considering a payday loan because your credit history prevents you from using other means of obtaining credit, Oportun might be a good option.
Oportun offers personal loans as small as $300 and accepts applicants without a credit history. The maximum APR is high, but not untypical for personal loans with lenient credit requirements. Term lengths start at 12 months so you'll have plenty of time to repay your loan. And since Oportun doesn't charge early payment penalty fees, you can pay off your balance quicker if you want.
According to Oportun, the full application process typically takes less than 10 minutes and most applicants receive the money on the same day.
If you do have a credit history but your score leaves a lot to be desired, you might still be able to get approved. To be on the safe side, you can get pre-qualified with a soft inquiry, meaning there will be no impact on your credit. Plus, if you get approved, your payment history will be reported to credit bureaus, which can help you improve your credit. Meanwhile, traditional payday lenders don't report positive payment history to the credit bureaus
Origination fees and loan terms may vary by applicant and state. For instance, loans below $3,100 are not available in Georgia, while in Hawaii, you can't apply for a loan below $1,600.
Who's this for? If you (or a family member) are an active military member or a veteran, or an employee or retiree of the Department of Defense and need quick cash, joining Navy Federal Credit Union to get a loan might be a good idea.
The loan amounts start at $250, and you can opt to repay the loan in as little as six months. Choosing a short repayment term is beneficial since it allows you to save on interest charges. The interest rates at Navy Federal are also on the lower side, compared to most personal loan providers. Plus, there are no early prepayment penalties if you finish paying off your balance before your loan's term end.
The credit union doesn't charge origination fees, which means your loan will be even more affordable. According to Navy Federal, in most cases, borrowers receive same-day funding.
Annual Percentage Rate (APR)
As low as 7.99% APR
Debt consolidation, home improvement, medical bills or emergencies
$500 to $50,000
2 – 7 years
Early payoff penalty
Who's this for? First Tech Federal Credit Union could be an excellent choice if you're in a money crunch and looking for a loan that allows for some flexibility in repayment.
You can borrow as little as $500 and, if you need to, you can defer your first payment for up to 45 days after the funding date. But as with most credit unions, you'll need a membership to apply for a loan. First Tech provides several ways to qualify for membership: working for a company on First Tech's partners list, working for the state of Oregon, working or living in Lane County, Oregon, or having a membership at the Computer History Museum or the Financial Fitness Association (an annual membership only costs $8 and anyone can join). Additionally, you're eligible if someone in your family or household is a First Tech Credit Union member.
The credit union doesn't charge any origination fees or early payoff penalty fees. You can check the interest rate you may be eligible for with no impact on your credit score. According to First Tech, most applicants can get approved right away and receive the money on the same day.
Annual Percentage Rate (APR)
7.99% to 17.99% APR
Debt consolidation, home improvement, medical expenses, auto financing and more
$600 to $50,000
1 to 5 years
Early payoff penalty
Who's this for? If you're looking for quick access to a bit of cash and have a good credit score, a small personal loan from Pen Fed Credit Union can be a great solution.
You can borrow as little as $600 with no origination fees. Terms range between one and five years, and there are no early payment penalty fees if you pay the loan off before the term's end. And as with many credit unions, the interest rate on personal loans are on the lower side. You don't need to be a member to apply. However, to receive the funds, you'll need to sign up for a PenFed membership and keep $5 in a qualifying savings account.
You can check your rate without affecting your credit score and receive multiple preapproved offers. The funds can be available within one or two business days if you select an electronic transfer. Otherwise, you'd have to wait for five to seven days for a check.
Payday loans might seem appealing since they offer access to quick cash without a credit check. Typically, all you need is to verify your identity and income. However, the tradeoffs include extremely high interest rates and fees, as well as short repayment terms — you're supposed to pay the entire balance off with your next paycheck.
Some payday lenders allow borrowers to roll over their loans for an additional finance charge to lengthen the repayment period. This leads to even higher costs associated with the loan.
Generally, payday lenders don't report positive payment history to the credit bureaus, meaning they can't improve your credit.
On the other hand, if you fail to repay the loan, the lender might sell your debt to a debt collector. In this case, the collection agency could report the debt as unpaid which most likely would have a highly negative effect on your credit.
The catch to payday lending is the combination of high financing costs and short repayment terms which can trap you in a debt cycle. While a payday loan might seem like a quick solution when you need cash urgently, how likely is your financial situation to change when the payment date comes? If you can't part with $500 right now, chances are, $500 plus interest will be too much of a hit on your budget next month too. And if you can't make the payment, it's all too easy to take on even more debt to keep your loan current.
In fact, many people do just that. The CFPB found that four out of five payday loans are rolled over or renewed within 14 days. Further, for 22% of new loans, borrowers extend the loan six times or more. With a typical payday fee of 15%, in this scenario, consumers end up paying more in fees than the original loan amount.
Given how risky payday loans are, many states have outright banned them. Payday loans are illegal in states such as Arizona, Connecticut, Georgia, Maryland, Massachusetts, New Jersey, New York, Pennsylvania and New Mexico, among others.
It's best to consider a payday loan the last resort. Even if bad credit is limiting your options, you still have a few choices:
- Personal loans. It's possible to get a personal loan even with bad credit. The interest rate you'll get will most likely be on the higher end, but still much more affordable than what payday loans charge. Plus, unlike traditional payday loan lenders, personal loan lenders report positive payment history to the credit bureaus.
- Cash or paycheck advance app. The Instacash feature in the Moneylion app allows you to get a cash advance of up to $500 with no interest or monthly fees. All you need to apply is an active bank account that's not too new and shows income deposits and a positive balance. Alternatively, paycheck advance apps like Earnin and Brigit can give you a portion of your upcoming paycheck without any interest and with limited fees.
- Payment plan. If the reason you're short on cash is your current debt obligations, consider contacting your creditors. You may be able to get on a payment plan which reduces your monthly payments. This will cost you more in interest but might allow you to get out of the money crunch without borrowing more.
- Cash advance from a credit card. You can take out cash from your credit card with a cash advance. This is still an expensive option since cash advances come with a higher interest rate than the card's purchase APR. Plus, interest begins to accrue immediately. That said, the costs will most likely be lower than those of a payday loan.
- Borrowing from family or friends. Your friends and loved ones may be able to help you when a financial emergency strikes. Depending on what you agree on, you might not even have to pay any interest. However, consider potential implications to your relationship in case you fail to pay back the borrowed money.
Payday loans are a risky practice with lenders often targeting financially vulnerable individuals. Avoid getting caught in a payday loan debt cycle by opting for a small personal loan that can offer fast funding. And even if that option doesn't pan out, there are still other safer solutions to consider, like using a cash advance app, negotiating with your creditors or borrowing from a friend.
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To determine which personal loans are the best payday loan alternatives, CNBC Select analyzed dozens of U.S. personal loans offered by both online and brick-and-mortar banks, including large credit unions, that offer loans under $1,000 and can fund them within one business day.
When narrowing down and ranking the best personal loans, we focused on the following features:
- Fixed-rate APR: Variable rates can go up and down over the lifetime of your loan. With a fixed rate APR, you lock in an interest rate for the duration of the loan's term, which means your monthly payment won't vary, making your budget easier to plan.
- Flexible minimum and maximum loan amounts/terms: Each lender provides a variety of financing options that you can customize based on your monthly budget and how long you need to pay back your loan.
- No early payoff penalties: The lenders on our list do not charge borrowers for paying off loans early.
- Streamlined application process: We considered whether lenders offered same-day approval decisions and a fast online application process.
- Customer support: Every loan on our list provides customer service available via telephone, email or secure online messaging. We also opted for lenders with an online resource hub or advice center to help you educate yourself about the personal loan process and your finances.
- Fund disbursement: The loans on our list deliver funds promptly through either electronic wire transfer to your checking account or in the form of a paper check.
- Creditor payment limits and loan sizes: The above lenders provide loans in an array of sizes, from $250 to $50,000. Each lender advertises its respective payment limits and loan sizes, and completing a preapproval process can give you an idea of what your interest rate and monthly payment would be for such an amount.
After reviewing the above features, we sorted our recommendations by best for overall financing needs, credit requirements, repayment terms military members.
Note that the rates and fee structures advertised for personal loans are subject to fluctuate in accordance with the Fed rate. However, once you accept your loan agreement, a fixed-rate APR will guarantee interest rate and monthly payment will remain consistent throughout the entire term of the loan. Your APR, monthly payment and loan amount depend on your credit history and creditworthiness. To take out a loan, lenders will conduct a hard credit inquiry and request a full application, which could require proof of income, identity verification, proof of address and more.