Subscribe to Breaking News emails

You have successfully subscribed to the Breaking News email.

Subscribe today to be the first to to know about breaking news and special reports.

Try This Before You Turn to a 390 Percent Payday Loan

by Kelli B. Grant, CNBC / / Source: CNBC.com
Payday loan businesses, some of them open 24-hours a day, advertise their services in Phoenix on Wednesday, April 7, 2010, one of 650 operating in the state with some open 24-hours a day. A growing backlash against payday lending practices have prompted legislatures around the country to crack down on the businesses. (AP Photo/Ross D. Franklin)Ross D. Franklin / AP

Breaking News Emails

Get breaking news alerts and special reports. The news and stories that matter, delivered weekday mornings.

If you're in need of cash — fast — make sure a payday loan really is your last resort. Cash-strapped consumers may have more options than they realize.

The Consumer Financial Protection Bureau is proposing new rules to curtail payday lending practices the agency says can lead borrowers into long-term "debt traps."

The protections would cover products including payday and other short-term loans, auto-title loans and some high-cost installment loans. Rates on such products, it says, can be as high as 390 percent — or more.

Read More from CNBC: When Good Debt Gets a Bad Rap

Among protections in the proposal, lenders would need to conduct an upfront "full-payment" test to determine if borrowers will be able to pay the loan without compromising other financial obligations and without needing to reborrow (a cycle that piles on fees and interest, making it harder to dig out).

Breaking News Emails

Get breaking news alerts and special reports. The news and stories that matter, delivered weekday mornings.

Borrowers who don't meet those requirements would have access to alternatives including a principal payoff option on a small, short-term loan or less-risky longer-term loans.

The CFPB proposal would also curtail lenders' ability to dip into a borrower's bank account to collect payment, potentially triggering overdraft fees or causing the bank to close that account. Lenders would be required to notify the borrower in writing first, and would be limited to two unsuccessful debit attempts before going back to the borrower for new authorization.

Consumers who turn to payday loans don't have access to avenues that middle-class consumers might tap, like opening a home equity loan or borrowing from a retirement account, said Greg McBride, chief financial analyst at Bankrate.com. Many have limited access to credit, or don't have a bank account.

"The people who have payday loans don't have those alternatives," he said.

But there are still options to consider first, said Bruce McClary, a spokesman for the National Foundation for Credit Counseling.

Read More from CNBC: Did You Pay for Credit Scores? You Don't Need To

"Don't ever be in a hurry to borrow money," he said. "Nine times out of 10 you're going to end up getting a bad deal."

First consideration: Can you avoid borrowing, period? Selling clothing or household goods might be preferable to taking out a small loan, McClary said.

If you need to borrow, start off by pulling your credit score from one of the many sites that offer free access. Banks and credit unions may offer small short-term loans with more competitive rates, yet many payday loan customers don't comparison shop to see if they might qualify, he said.

"That assumption is a costly assumption," McClary said. "Don't make a decision without knowing where you stand."

Your employer may offer an interest-free advance on your paycheck, but weigh the risks.

"If you put yourself in hock to the boss, it's probably not a good place to go from a career standpoint," said McBride. If you're living paycheck to paycheck, that advance is also likely to catch up with you for future bills.

As an alternative, there are several apps that also can help boost your paycheck, said Gerri Detweiler, head of market education at Nav, a site that helps business owners manage their credit. Even.com helps balance out uneven paychecks, she said, offering interest-free advances when your paycheck is lower than average. (Users pay back the advance on their next higher-than-normal check; using the app costs $3 per week after a 30-day trial.)

Read More from CNBC: The Debt Domino Effect of Homebuying

There's also ActiveHours.com, which lets users get early access to their pay based on the hours they have already worked. (The service charges your bank account on your next payday to reclaim the amount you advanced. Users can decide how much to pay, the site notes, "based on what you think is fair.")

"If all other options have failed and you have to turn to a payday lender, make sure you know the laws in your state," McClary said.

Regulations are "all over the map," he said, and it's important to know what kind of policies and rates you might face for in-person and online borrowing. Check up on the lender in the CFPB's complaint database.

Looking ahead, take steps to help avoid needing more fast cash down the line.

"Nearly 30 percent of Americans don't have any emergency savings at all," McBride said. "Every little bit you can squirrel away in a savings account acts as a buffer."

Breaking News Emails

Get breaking news alerts and special reports. The news and stories that matter, delivered weekday mornings.
MORE FROM news

Have feedback?

How likely are you to recommend nbcnews.com to a friend or colleague?

0 = Very unlikely
10 = Very likely
Please select answer

Is your feedback about:

Please select answer

Leave your email if you’d like us to respond. (Optional)

Please enter a valid email address

Thank you!

Your feedback has been sent out. Please enjoy more of our content.

We appreciate your help making nbcnews.com a better place.