how to get out of payday loans
Updated September 29, 2021

8 Ways to Legally Get Out of a Bad Payday Loan

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Payday loans might sound like a good idea when you need them. However, they can leave you stuck in a cycle of debt thanks to their high interest rates and fees.

If you feel trapped in a cycle of bad payday loans, take comfort in the fact that you’re not alone. Roughly 12 million Americans use payday loans each year, losing about $9 billion to loan fees.

But it may surprise you to learn there are at least eight ways to legally get out of a bad payday loan. Here’s how.


What Are Payday Loans?

Payday loans are extremely short-term loans, and as the name implies, they usually need to be repaid by your next payday.

These loans are usually the only source of short-term credit for millions of people. Payday lenders don’t even check your credit report. And you can get a payday loan approved and funded in a matter of minutes.

Here’s the rub: payday lenders charge interest of anywhere from 300% to 500% on an annual basis. That makes payday loans one of the most expensive loan types there is.

But believe it or not, there’s an even bigger trap with payday loans.

Because the interest rates on these loans are so high, many borrowers find themselves unable to pay the entire owed amount back at the due date. So they roll over or renew their loans and get caught in a trap of expensive loan extensions.

The Consumer Finance Protection Bureau reports that 80% of borrowers extend their payday loans at least once. On top of that, 12% of borrowers opt for an extension 10 times or more.

Eventually, borrowers bump against a maximum loan limit. Most payday loan lenders will grant a loan of no greater than $1,000. They recognize that the higher the loan amount, the less likely they are to collect on the repayment. Plus, you can’t borrow any more than the net amount of your next payroll check.

That means that, ultimately, payday loan borrowers bump up against a loan limit that won’t be solved by another payday loan.

Should you reach a point where you’re no longer able to pay on your loan, payday lenders are among the worst adversaries on the collection front. They’re also notorious for obtaining quick legal judgments that you won’t be able to negotiate your way out of.

8 Ways to Get Out of a Payday Loan

There’s no mystical secret on how to get out of a bad payday loan. But there are at least eight strategies that can get you out if you’re trapped in one now.

1. Get a Lower-Interest Loan

If you’re unable to break your way free from the payday loan trap, you might be able to secure another type of loan that will charge a lower interest rate and grant you more time to pay it off.

Banks and credit unions offer traditional personal loans with reasonable terms. However, if your credit is less than stellar, you might not meet the rigid standards required.

That said, if you have impaired credit, there are still some alternative personal loans you may qualify for. You can check out the personal loan platform Fiona, which helps you compare personal loan offers in less than sixty seconds, no matter what your credit score.

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If your credit is holding you back from a personal loan, you may also consider asking a friend or relative to co-sign on a traditional loan for you. However, note that if you’re unable to make payments, your friend would be liable for paying off your debt at once. That could put a serious strain on any relationship.

2. Get a Payday Alternative Loan

Also known as “PALs,” these are loans offered by credit unions as alternatives to payday loans. Loan amounts range between $200 and $1,000, with terms between one and six months. Up to three such loans can be granted to a borrower during a six-month timeframe.

One of the major advantages is that credit unions typically charge an application fee of no more than $20 and interest at an annual rate not to exceed 28%. It’s also possible the credit union won’t even perform a credit check.

You can get more information on PALs on the website. But you’ll need to check with local credit unions to see if they participate in the program. You’ll need to become a member of the credit union to be eligible to participate.

3. Arrange an Extended Payment Plan

Some payday lenders will allow you to extend repayments on your loan if you’re having difficulty with the original terms. Not only will the loan payments be more manageable, but the lender may waive additional interest charges. However, exact terms will depend on lending laws in your state, if there are any that apply to payday lending.

Note that, if you go this route, you’ll still be working with a payday lender. And while the term may be extended, it will generally be by only a matter of weeks. The lender may also grant only a limited number of extensions, such as three or four pay cycles.

This isn’t a particularly recommended strategy. While it does lower your weekly payments, it keeps you in the payday loan system. And since the industry is highly decentralized, the terms of any extended payment plan can vary substantially from one lender to another.

If you’re granted an extended payment plan, use it to get out of the payday loan trap once and for all.

4. Explore Faith-Based Lenders

Aware of the plight of the financially disadvantaged, some faith-based organizations provide help in getting out of a payday loan situation.

One example is Exodus Lending. This company offers a 0% interest refinance program, lending up to $1,000 to qualified borrowers. The program is available only to residents of Minnesota, but you can check if there are similar organizations located in your state.

One of the best ways to do this is to check with local churches in your area and see if they’re aware of such a program. Otherwise, do an online search for similar organizations.

5. Borrow From Family or Friends

Like asking someone to co-sign for you, borrowing from family or friends ranges somewhere between uncomfortable and impossible. But if it’s possible, you may want to put up with the discomfort.

After all, payday loans are one of the worst credit situations you can possibly be in, and any effort to get out of the payday loan cycle is well worth trying.

For the most part, you’ll be exchanging one debt – a payday loan – for another, which will be owed to the family member or friend. But there are three advantages to this arrangement:

  1. It will get you out of the payday loan trap.
  2. The loan will most likely charge no interest, which will be a major relief all by itself.
  3. You can spread payments over several weeks or months, creating a better fit within your cash flow.

However, the real cost of a personal loan from family or friends is the potential for a damaged or lost relationship. That can happen if you’re unable to pay, or if it takes you much longer than originally agreed on. If you go this route, make every necessary effort to repay the loan as quickly as possible and don’t take advantage of a loved one’s generosity.

6. Sell Personal Possessions

Sometimes the most effective way to get out of the payday loan cycle is by raising extra funds. This can often be done by selling personal possessions you no longer need or want.

You can do this through a garage sale, a flea market, or even by selling items online. Large items can be sold through Craigslist to local buyers to avoid high shipping charges.

Search through your home and see if you can find any items you no longer use. Even though you have no use for them, someone else might. You may be able to sell them to raise additional cash to repay your payday loan.

7. Start a Side Hustle

Most commonly, this can be done through a part-time job. A lot of people find it difficult to balance a full-time job and a part-time situation. But it may help if you can accept that it’s strictly for the short term.

If you don’t want to work a part-time job, make a list of any skills you have, and see if there’s anything you can do to earn money by selling those skills. For example, you may be able to pick up some work cutting lawns, painting houses, cleaning houses, or helping someone with a computer problem.

One of the advantages of monetizing a skill as a side hustle is that it can be an ongoing source of income. That extra income may eliminate the need for payday loans in the future.

8. File for Bankruptcy

This is not an alternative I recommend lightly, and it certainly doesn’t apply to most people. But if you are stuck in a high-interest payday loan trap that you can’t get out of through any of the strategies above, bankruptcy may be a necessary alternative.

Now, you won’t be able to file for bankruptcy for a single payday loan. But if you’ve been forced to resort to payday loans because you have large amounts of outstanding credit or unpaid debts, it may be time to at least speak with a bankruptcy attorney.

Filing for bankruptcy will hurt your credit. But if you’ve been forced to resort to payday loans, it’s very likely you already have credit problems. Bankruptcy will offer a fresh start, eliminating most or all the debt you currently have.

Final Thoughts

It’s important to understand that all the strategies above will offer you the ability to get out of only a single payday loan situation. What’s far more important is rearranging your finances so that payday loans will no longer be necessary.

For many consumers, the major problem with payday loans is that they become a financial habit. Once you get out of a payday loan, your mission will be to stay out forever. That may require reducing your living expenses, increasing your income, or both.

Yes, there’s some sacrifice involved in those transitions. But that’s the only way to get out of the payday loan cycle for good. And given the strict terms and ridiculously high interest rates they charge, you owe it to yourself to do just that.


Kevin Mercadante

Kevin Mercadante is a freelance personal finance blogger and the owner of his own personal finance blog, Out of Your Rut.  A recent transplant to New England, he has backgrounds in both accounting and the mortgage industry.

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