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Published 16/05/2019 11:02:00, by Marina Maher

Payday loans are an act of financial desperation – they cost you money and can have huge impact on your long term financial credibility.  If you need to borrow money and are thinking of getting a payday loan, stop to consider your options. Although easy to set up, a payday loan can quickly turn into a problem debt for many people. With the help of the Money Advice Service let’s look at some possible alternatives.

Borrowing to pay for everyday essentials

Get free independent advice

A payday loan is almost certainly not the answer if you need the money to:

  • pay household bills
  • pay rent or a mortgage
  • pay back people you owe money to.

If you’re struggling to pay for the essentials, speak to a debt adviser.  They can help you work out a budget, prioritise your debts, talk to everyone you owe money to and help set up a repayment plan.

There are lots of organisations that can help with free, confidential debt advice.  There is certainly no need to spend money paying a debt management company to help you sort out your money worries.

Online and telephone debt advice services
Debt Advice Foundation - www.debtadvicefoundation.org - 0800 622 61 51Debt Advice Foundation is a national debt advice and education charity offering free, confidential support and advice to anyone worried about debt.

StepChange Debt Charity - www.stepchange.org   - 0800 138 1111
StepChange Debt Remedy provides you with the expert advice, budget support and solutions to help you manage your debts.

Citizens Advice Web Chat - www.citizensadvice.org.uk, 
Citizens Advice offers free, independent, confidential and impartial debt advice through their web chat service.

PayPlan - www.payplan.com  - 0800 280 2816
PayPlan’s online debt solution tool, PlanFinder, they also offer free live chat and email support for immediate help.

National Debtline - www.mymoneysteps.org - 0808 808 4000
National Debtline offers free debt advice online through its My Money Steps tool and its web guides, fact sheets and sample letters.


Money for non-essential spending
Payday loan companies might advertise payday loans for things like nights out, new clothes or other treats.  But if you succumb to their “offer”, you will end up paying much more than if you waited and saved the money to pay for them.

And if you just can’t wait, there are usually far cheaper ways to borrow.

Try Community Development Finance Institutions (CDFIs) as an alternative
Community Development Finance Institutions (CDFIs) are small independent organisations that offer loans to people who have been turned down by their bank or credit card company. They tend to be local organisations offering a personalised service that then reinvest any profits they make back into the community.  Community Development Finance Institutions and all other organisations offering consumer credit have to register with the Financial Conduct Authority (FCA) and abide by their rules and standards.

You can find an alternative lender, including CDFIs, near you using the Finding Finance website.

Other ways of borrowing

Ask for a pay advance
If you need money before payday, it’s always worth asking your employer if they’ll give you an advance on your wages.  If you are claiming benefits and waiting for your first payment, or if your money is late you can ask your Jobcentre Plus adviser for a short-term advance.  Normally you’ll need to pay this back out of your benefit payments.

Borrowing from family and friends
Borrowing emergency money from a family member or a friend can help you avoid the risks that go with payday loans - but do make sure that both you and the person you’re borrowing from take the time to:

  • put your agreement in writing
  • work out a budget and a repayment plan
  • discuss what will happen if you’re late paying it back or don’t repay it at all.

Using a credit card
If you’ve got a credit card, you could consider using it for purchases - or even cash withdrawals, but only if you really have to, as they can be expensive.   Make sure you pay back as much as you can each month, to keep costs down, and don’t be tempted to spend more than you can comfortably afford to repay.

If your credit card application has been turned down
There are credit cards especially for people with a poor credit rating, for example, because of previous defaults or County Court Judgments (CCJs).  They charge a much higher rate of interest than other cards but so long as you repay all or most of the balance each month they will still be cheaper than a payday loan.
Find out more about credit cards for poor credit on the Money Saving Expert website

Not sure you can pay off the balance each month?
If you don’t manage to repay the balance on your card each month, it’s still likely to be far cheaper than a payday loan - but try to pay off as much as you can.

Using an authorised overdraft
If you have a current account you might be able to get an authorised overdraft from your bank.  These can be fairly expensive (although there are some interest-free overdrafts) but it will usually be cheaper than using a payday loan - as long as you stay within the overdraft limit.   Don’t be tempted to slip into an unauthorised overdraft as this can be very expensive and lead to serious money problems!

Borrowing from a credit union
A much more affordable alternative to a payday loan is a loan from a credit union.  There’s a cap on the amount of interest they can charge – 3% a month or 42.6% a year APR for England, Scotland and Wales, 1% a month or 26.8% APR for Northern Ireland.

Help from your local welfare assistance scheme
If you’re struggling to pay for essentials like food, heating and clothes you might be able to get help from a local welfare assistance scheme.

They vary from area to area and can provide, for example, vouchers, pre-payment cards, furniture or white goods and food banks.

Some local authorities might also give loans:


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