{"id":142212,"date":"2019-06-30T21:50:52","date_gmt":"2019-06-30T20:50:52","guid":{"rendered":"https:\/\/www.finder.com\/uk\/?p=142212"},"modified":"2025-12-01T14:58:00","modified_gmt":"2025-12-01T14:58:00","slug":"alternatives-to-payday-loans","status":"publish","type":"post","link":"https:\/\/www.finder.com\/uk\/payday-loans\/alternatives-to-payday-loans","title":{"rendered":"15 alternatives to payday loans"},"content":{"rendered":"

Warning:<\/strong> Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk<\/a>.<\/p>

Please note:<\/strong> High-cost short-term credit is unsuitable for sustained borrowing over long periods and would be expensive as a means of longer-term borrowing.<\/p><\/div><\/article>

When an expense crops up and you find yourself short of cash, payday loans<\/a> should always be considered a last resort. They’re fast and simple but eye-wateringly expensive. <\/p>

“High-cost, short-term credit”, as it’s defined by the Financial Conduct Authority (FCA), should never cost more than 0.8% per day, but sadly most payday loan providers have opted simply to charge the maximum allowable, which, on a debt of say \u00a3200, equates to \u00a31.60 per day.<\/p>

Fortunately, there’s a range of cheaper alternatives to explore, even if you have poor or limited credit. <\/p>

1. Use your savings<\/h3>

If you\u2019ve successfully put some money aside for a rainy day, this is the time to use it. You\u2019re unlikely to ever earn more in interest on your savings than you\u2019d pay on a loan, so it\u2019s usually going to be the cheaper option. Plus, any money you\u2019d have used for loan repayments can be transferred into your savings account. <\/p>

2. Use the bank of mum and dad\/friends and family<\/h3>

Sometimes it can be daunting to turn to those close to us for help. But if you can find a friend or family member to borrow money from, this could prove to be a lower-cost and hassle-free option.<\/p>

One major downside, though, is that if something goes wrong and you fail to repay, you risk damaging relationships rather than just getting a fine or paying more interest. It\u2019s best to put your agreement in writing and discuss what would happen if you couldn\u2019t pay the money back.<\/p>

3. Apply for an arranged overdraft<\/h3>

If you don\u2019t already have one, speak to your bank about arranging an overdraft on your current account or extending your existing one. New rules introduced by the FCA in April 2020 mean that banks must now charge a single annual interest rate on all overdrafts, making it easier for customers to compare charges. Interest rates tend to range from 19% to 40% APR. Although this is high, it\u2019s still likely cheaper than a payday loan.<\/p>

You could also consider switching to a current account with a cheaper or even interest-free overdraft, but this depends on how quickly you need the extra cash. Under the Current Account Switch Service, switching current accounts should be completed within 7 days. You might also benefit from a switching bonus.<\/p>

4. Buy now, pay later (BNPL)<\/h3>

Buy now, pay later<\/a> schemes have become increasingly popular and enable shoppers to place an order online now and pay for it later. The amount due is usually split into 3 or 4 manageable amounts, with the first payment due at the time of the purchase and the rest due over the coming weeks. Exactly how this works depends on the provider. <\/p>

An increasing number of retailers now offer BNPL as an option when you reach the online checkout, which means it could be suitable if you need to make an urgent purchase. In some cases, you can also use it in-store. Payments are usually interest-free, but you could be charged fees if payments are missed. This could also affect your credit score, so it\u2019s important to keep track of what you owe and when.<\/p>

5. Apply for a Universal Credit advance or Budgeting Advance<\/h3>

If you\u2019re waiting for your first Universal Credit payment to come through, you may be eligible for an advance payment if you are in financial hardship. You might be able to get up to 100% of your estimated Universal Credit payment, and you then pay back in instalments through future Universal Credit payments.<\/p>

If you\u2019re already receiving Universal Credit, you might also be able to get a Budgeting Advance<\/a> to help pay for emergency household costs. The smallest amount you can borrow is \u00a3100, but you could get up to \u00a3812 if you have children. Again, you repay this through future Universal Credit payments, and it must be repaid within 12 months. <\/p>

6. Check if you can get a Budgeting Loan<\/h3>

If you don\u2019t get Universal Credit, you might be able to apply for a Budgeting Loan from the government instead. To qualify, you must have been getting one or more of these benefits for the past 6 months:<\/p>