When it comes to finding apps to borrow money from and taking out payday loans, we tend to take the stance of a Cool Mom.
We’d prefer if you didn’t, because there are safer and smarter alternatives. But if you are gonna do it, we’d rather you do it safely.
So here are some smart strategies for borrowing money responsibly. With a little help from our AI money assistant, Cleo.
And if you want a safe alternative to taking out a loan, scroll right down to the bottom.
1. Do your research
We’re guessing that if you need to take out a payday loan, you’re probably in a bind with money and feeling kinda stressed.
Take a breath. Resist the urge to take the first payday loan that will accept you. It’s super important you read the terms and conditions.
Pay attention to interest rates, repayment schedules, penalties, and any other relevant clauses. Get clarification from the lender if anything is unclear. Then read it again.
A note on interest rates
Payday loan companies, and some of the sketchier apps to borrow money from, are in the business of making money from people in vulnerable financial situations. So their products are marketed as a quick and easy solution. But with high-interest rates, a payday loan isn’t always the safest option in the long term.
In the US, four states have no interest-rate caps at all, and one state allows a 1,950% APR for a $100, 14-day loan. Ahem, Missouri.
So, you’ll want to calculate the true cost
For example, if you’re gonna take out a $500 payday loan with a $75 fee and a 15% interest rate, you would owe $650.
Here’s how you calculate the true cost:
Total amount = Principal Amount + Interest + Fee
Total amount = $500 + $75 + $75
Total amount = $650
So that’s your regular monthly expenses. Plus $650.
If you’re not aware of the true cost, and you don’t have a solid repayment plan in place (more on that next) the fees and interest rates can add up. This can lead people to look for another app to borrow money from, and take out a second loan to cover the costs of the first one. Which is a recipe for getting caught in a debt spiral.
2. Make a plan for repayment before you borrow
To make a plan for repayment, you’ll need to get a picture of your financial situation as a whole. Review your income, calculate your expenses, and create a personalized budget.
This way you can know how much you can feasibly put aside towards repayment, or where you’ll need to make some cuts to make repayment work.
Or, get a super smart AI robot to do that for you.
Because you are literally on the Cleo website right now, we are gonna mention that you can download Cleo for free, and she’ll do all the math to create a budget personalized for your particular financial situation.
It’s basically just like having a money assistant in your pocket. You can chat to Cleo at any minute of the day about your money situation, and she’ll let you know where you’re at.
Here’s how it works:
1. When you download Cleo for free, you’ll be asked to connect your main checking account. Dw, you won’t be charged. Our super-smart AI just uses this info to help you make the best money decisions.
2. Cleo will categorize your spending into essential and non-essential (with categories like shopping, groceries, etc.) and you can go back and personalize this even further.
3. You can then set spend limits for each category, or Cleo can suggest a spend limit for you.
4. Cleo will send you reminders when you’re about to hit spend limits. Yw.
Using a money app to automate your payments is one step towards making managing your money, and your loan repayment, easier.
There are plenty of ways you can incorporate automated payments into your budget.
Cleo will send you reminders when bills are due, so you don’t forget, and they don’t end up eating into the money you need for loan repayments. And, automating your savings can help you build an emergency fund, so you can avoid loans in the future.
With Autosave, Cleo automatically stashes small amounts away for you each week so you don't have to think about it. Just watch your Cleo Wallet expand 💰
Cleo offers four different savehacks to help you save:
• Set & Forget: Pick an amount up to $24 and Cleo will set it aside each week for you
• Round Up: Cleo rounds up and sets aside the change from your spends each week
• Smart Save: Cleo uses ~algorithms~ to set aside money each week
• Swear Jar: Get "fined" when you spend at selected retailers (the fine goes into your Cleo Wallet each week)
To get started just type "autosave" to Cleo in the app.
4. Get professional help with debt
If you’re feeling overwhelmed with debt, you’re not alone. And you don’t have to face it all on your own. For professional advice, check out our article on debt management by our resident financial advisor, Anna Yen.
Anna is a financial wellness expert with 2 decades of experience in financial markets. In the article, she talks all about medical debt relief, debt consolidation, and debt management plans.
5. Use alternatives to loans in future
If you need a quick spot, and you want to avoid taking out a loan, we’ve got you. Cleo’s cash advance1 is a totally different thing to a payday loan. You could get up to $250,2 with 0% interest and no credit checks. Download Cleo to get started.
1 Cleo Plus is our subscription service, which offers eligible users cashback on your money, information on your credit score, and access to cash advances ("Cash Advance"). Advance amounts will vary based on eligibility. To learn more about eligibility, repayment, and overall terms, please visit: meetcleo.com/terms
2Elgibility requirements apply.
Want an alternative? Cleo could spot you up to $250.1 No credit checks. 0% interest. No stress.