The Best Alternatives to Payday Loans for College Students Who Need Cash

In an ideal world, all financial problems would be solved with a simple solution: make more money . Obviously, it’s never quite that simple in the real world.

While increasing your income should be part of any long-term strategy when you’re struggling to make ends meet, sometimes you need money right now. In this case, it’s tempting to apply for a payday loan just to keep yourself afloat.

Here’s why you shouldn’t do that — and where to look instead. Funding U does not necessarily recommend any specific payday alternatives, but we’ve put together enough information for you to make the decision on your own.

What are payday loans?

Payday loans are short-term loans, usually around $350, with extremely high interest rates, ranging from 129% APR to 591% APR depending on the state. The average borrower will pay $520 in fees just to borrow $375.

Payday loans are popular because they don’t require a credit check and will accept anyone who has a regular source of income. Unfortunately, most people who take out payday loans can’t repay them immediately and have to renew the loan, triggering another round of fees. Approximately 22% of borrowers renew their payday loans six times or more.

Payday alternative loans

Some credit unions offer payday alternative loans (PAL). These are like a hybrid of personal loans and traditional payday loans. 

PALs range between $200 to $1,000 and have a term length between one and six months. Credit unions sometimes charge a $20 application fee. To be eligible for a PAL, you usually must have been a member of the credit union for at least a month. 

The maximum interest rate on a PAL is 28%, much lower than a payday loan and similar to a personal loan. Borrowers are limited to taking out three PALs in a six-month period

Credit unions usually report PALs to credit bureaus, so borrowers who repay theirs successfully can improve their credit.

Many credit unions that provide PALs also offer free financial literacy education to borrowers. This can help consumers learn strategies to avoid needing short-term cash from things like PALs and payday loans.

To become eligible for a PAL, you’ll have to join that specific credit union. This may come with a small application fee, usually around $15-$20.

Only credit unions that are part of the National Credit Union Administration (NCUA) offer PALs. You can find your nearest one here.

Personal loans

If you need to borrow more money than what a payday alternative loan provides, look at personal loans. Personal loans have lower interest rates than payday loans and have a maximum APR of 36%

The repayment term is usually between one to five years, and they have fixed monthly payments. Personal loan amounts generally range from $5,000 to $50,000, but this may depend on your credit history.

You can apply for a personal loan through a bank, online lender, or credit union. Apply for a few different lenders to find the lowest interest rate.  

Cash advance

Students who already have a credit card can use it to take out a cash advance. A cash advance is when you go to the ATM and use your credit card to withdraw money, much like you would with a debit card. 

Most cards limit cash advances to 20% of the card’s available limit. If your card has a $5,000 limit, then the cash advance limit would be $1,000 or less.

Card providers charge a higher interest rate, an average of 23.68% APR, on cash advances than credit card purchases, so a cash advance should only be used if you need physical money. Also, the interest on a cash advance will start accruing immediately, whereas regular credit card transactions have a 21-day grace period before interest starts building up. 

Other options

Taking out a loan isn’t your only solution and should be a last resort. Read below for some less expensive options. 

Call the provider 

If you’re looking for a loan to pay for bills like utilities, call the provider first and ask them for help. Many offer assistance for customers in distress, with options like temporary deferrals or lower rates for low-income consumers. 

Even your landlord may be willing to let you pay rent late without charging a fee. Some auto lenders let you skip a payment in exchange for a small fee as well.

Always call and ask before you’ve missed a payment, since some programs are only available for customers in good standing. A lender or service provider is always more willing to work with customers who are upfront about their ability to make payments.

Contact your university

Some colleges offer emergency financial help for students. Contact the financial aid department and your advisor to ask about these programs. The variety and availability will depend on your particular institution. 

Negotiate medical bills

Before taking out a loan to pay for a medical procedure, contact the doctor or hospital to ask about your options. Most will set up an extended plan with manageable payments, sometimes as little as $5. 

You should also ask if they offer discounts. Many non-profit hospitals have special programs for low-income patients and can waive some of the fees. You’ll likely have to provide a paystub or last year’s tax returns as proof of your income.

Start a crowdsourcing campaign

If you really can’t afford to pay back a loan and need money quickly, asking other people through a crowdfunding campaign is a viable option. While it’s not guaranteed that you’ll raise 100% of what you need, it has the potential to dramatically improve your situation in a relatively short amount of time.

You can set up a page through GoFundMe, which is free for the creator. Share the link on your social media profiles. It may hurt your ego to ask friends and relatives for money, but for some people, it’s the best option  in an emergency.

If you don’t feel comfortable putting up a public GoFundMe page, you can create a custom PayPal link to send around. This will limit the potential scope of your fundraising efforts, but allow you to maintain some privacy about your financial circumstances.

Borrow as little as possible

Whatever option you choose, try to take out as little as possible. The more you borrow, the more you’ll have to repay. Make sure to research your options thoroughly and choose the least expensive option. Even saving 1% in interest can lead to huge savings, depending on how much you borrow. 

General Disclaimer
Funding U creates informational content that is of interest to prospective borrowers and our applicants. The information included in this blog post could include technical or other inaccuracies or typographical errors. It is solely your responsibility to evaluate the accuracy, completeness and usefulness of all opinions, advice, services, merchandise and other information provided herein. FUNDING U IS NOT RESPONSIBLE FOR, AND EXPRESSLY DISCLAIMS ALL LIABILITY FOR, DAMAGES OF ANY KIND ARISING OUT OF USE, REFERENCE TO, OR RELIANCE ON ANY INFORMATION CONTAINED WITHIN THESE BLOG POSTS (INCLUDING THIRD-PARTY SITES).
Third Party Brands

No brands or products mentioned are affiliated with Funding U, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.

External Websites
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by Funding U. Links are provided for informational purposes and should not be viewed as an endorsement.
Funding U Loan Products
Loans are made by Funding U which is a for-profit enterprise. None of the information contained in Funding U’s website constitutes a recommendation, solicitation or offer by Funding U or its affiliates to buy or sell any securities or other financial instruments or other assets or provide any investment advice or service.
You May Also Like
Read More

Investing as a College Student

Investing is like growing trees, and planting even just a few seeds early on can be more important than planting a whole orchard later in life. In other words, any amount you can invest while still in college will have a large impact on your financial future.