Alternatives to Payday and Car Title Loans

Know your rights and the risks associated with short-term loans

Payday loans are often small, short-term loans of $500 or less, and usually have to be paid back within two months or sooner. Also called cash advance loans, they are legal in many states. Car title loans work similarly, though they can be for more money, typically up to 50% of a vehicle’s value, and come with higher risk, such as losing your vehicle if you can’t repay the loan.

Historically, payday and car title loans have often been expensive for consumers, notes the Federal Trade Commission (FTC). And depending on the laws where they are located, lenders can often charge from $10 to $30 for every $100 borrowed for payday loans. If you do the math on a typical two-week payday loan, a fee of $15 per $100 translates to an annual percentage rate (APR) of 391%. For comparison, in October 2022, the average credit card interest rate was 18.91% in the U.S., according to

Payday and car title loans also work differently from a loan you may receive from a credit union or bank. Here’s how: Someone seeking a short-term loan usually gives a lender a personal check for the amount they want to borrow, plus the lender’s fees. In many states, you can also allow a lender to take the loan amount — plus fees — directly from your bank account electronically. If you don’t repay the loan on time, the lender can cash the check or electronically debit your account, notes the FTC. With car title loans, if you don’t pay back the money you owe, the lender can take your car and sell it to get their money back.

Fortunately, there are alternatives to short-term loans for those who need to borrow money. The FTC and other consumer agencies offer these less expensive (and less risky) options to those considering payday and car title loans:

Ask for a Payment Extension

Ask creditors nicely for more time to repay your bills. Since the pandemic started in 2020, many lenders have been more willing to work with those who owe them. If you are offered an extension on your bill, make sure to find out if there will be an additional charge for that service and how much it will be. Remember, it only takes a few minutes to pick up the phone and make the request.

Consider Credit Unions & Community Banks

Credit unions typically offer lower interest rates than the big banks, notes the FTC, adding that some federal credit unions offer “payday alternative loans,” or PALs, for small loans. In many cases, these loans are less expensive than payday or car title loans. Alternatively, you can visit a local community bank, or check them out online to see what services are offered. Community banks often have the ability to give smaller loans with less complicated repayment terms than some larger, national banks.

Look for Other Sources

If you are strapped for cash during tax season, a refund could help you pay your bills. If you think you may have a tax refund coming, file as soon as you can and make sure to use the direct deposit option for your refund. That way, it will go directly into your bank account. And while it can be difficult to ask your family or friends for help, it may be worth it to avoid taking out, or rolling over, a payday or title loan.

Get Help Managing Debt

If you often find yourself without enough money to cover your expenses through the end of the month, a credit counselor may be able to help you take control of your finances. There are non-profit groups across the U.S. that offer credit guidance for little or a low cost. Besides searching online, you can also check with your employer’s HR department, local credit unions, local community bank, United Way agencies and area housing authorities for free or low-cost credit counseling programs where you live.

Know Your Rights

Knowledge is power. If you are unsure about the rules for payday loans in your area,  the National Conference of State Legislatures can help. They track the status of payday loan laws in all 50 states and other U.S. territories and provinces with a complete listing on their website.

With reporting by Casandra Andrews

Jean Chatzky

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