Even people who are extremely careful with their money can find themselves in an emergency situation that requires a hefty amount of cash. Many households operate with a budget in mind and don’t always have the funds at hand to cover unexpected costs.
So, people often turn to payday loan providers for quick access to cash. However, payday loan providers often want the full amount back quickly and at very high interest rates.
So what alternatives to payday loans can your employees seek for emergency expenses?
Why are payday loan alternatives better for employees?
Payday loans can put a lot of stress on a household. Since they need to be paid back so soon, people can quickly find themselves in the situation of constantly relying on payday loans. Between the fees for getting these loans and the extremely high interest rates, your employee might soon find themselves in serious debt. In fact, the Consumer Financial Protection Bureau found that 80% of these loans are taken out under two weeks after the debtor has finished repaying a previous payday loan.
While this is related to the personal financial circumstances of employees, organizations should pay attention. The level of stress associated with payday loans can have a hugely negative impact on your employees’ mental health and, in turn, their job performance.
So, educating employees on the negative impact of payday loans and the alternatives available is a win-win scenario on both sides.
The 5 best alternatives to payday loans for your employees
Luckily, there are plenty of alternatives to payday loans. Most need to be undertaken directly by employees, but there are a few ways that employers can help through their payroll systems, too.
1. Payment plans
Many unexpected situations can come with a large bill attached. Whether it’s medical bills or an expensive repair on an essential household vehicle, lots of emergency scenarios require fast access to cash.
Rather than seeking lump sums in cash to pay immediately, it’s a good idea to first explore the possibility of a payment plan. Many businesses and healthcare providers accept payment plans with a low interest rate so bills can be paid in a manageable way over time.
2. Payday alternative loans from credit unions
Many credit unions offer payday alternative loans (PALs). Even if someone is not already a member of a credit union, they could be eligible to join and get a loan.
While credit unions do take a person’s credit score into account, long-term members can benefit from the fact that an assessment of their relationship with the union and their current income will also be taken into account.
Credit unions will typically let someone borrow a couple thousand dollars with a reasonable interest rate and relatively long-term repayment plans.
3. Personal loans
For some people, access to loans can seem totally out of the question due to a bad credit score. It’s these types of situations that often have people turning to payday loans. But there are many payday alternative loans available online regardless of a person’s credit score.
Whether it’s a personal loan or a bad credit loan (specifically created for people with bad credit), there are ways around poor credit scores. Unlike payday loans, they’re usually paid back over a few months or a couple of years. These types of loans usually assess someone’s income to qualify them for a loan. Amounts can range from a few hundred dollars to thousands.
4. Online cash advances
Most organizations these days do not offer paycheck advances. However, there are several online cash advance apps that people can use to get an advance on their pay. These apps usually require proof of income and charge low fees for an advance.
However, they generally only advance under $1,000 at a time, so they’re not always suitable for larger emergency expenses.
5. Early pay access
A better alternative to payday loans that can be provided directly by you as an employer is early access to pay. The sooner employees can access their regular paycheck, the quicker they can take care of emergency expenses when they occur.
Paper checks need to be delivered to your employee before being lodged or cashed. Alternative methods, such as payout debit cards, make your payroll processes faster and cheaper while ensuring that employees can access their pay as quickly as possible. They also make it very simple for you to provide early or off-schedule payments to employees as needed.
Save time and money with payout cards
Paying your employees with reloadable payout cards saves time and money on your payroll processes. It also provides tons of benefits to your employees, as they no longer have to wait around for lengthy check deposits. With Juice for Business, you can quickly set up payout cards for employees and contractors in three easy steps. Interested in learning more? Sign up today to get started!
