10 cheaper alternatives to payday loans

Instead of panic borrowing and turning to payday loans, there are many alternatives you can use that won’t see you stung by significantly high interest.

When you’re in a financial pickle, turning to a payday loan can seem like such an easy thing to do. It gets you out of a rut at a difficult time when you have no money, but in desperation, you may not look at how much the interest payments will cost you, and you might not even care!

I have been caught up in a dreadful cycle of payday loans. At first, I took one out just to pay for food until payday. Then, as the vast interest payment took a big chunk of next month’s money, I had to get another. Then, the next month, we were even shorter.

The longer we were customers and paid the money back on time, the more the payday loan company “rewarded” us by increasing the amount we could borrow, giving us an even more giant hole to fall into. This went on for around ten months until we had nothing left at all.

I know the whole thing was our fault — we didn’t budget properly and had no savings for when things went wrong — but we felt like we had nowhere else to turn.

We haven’t been in a position where we felt the need (or pressure) to take out a payday loan for over two years. We manage our finances well and plan for unexpected costs. Sadly, this isn’t the case for millions of others who are either in a financial rut or in that cycle of debt that we were in.

The thing is, there are alternatives to these high-interest rogues.

Instead of panic borrowing and opting for solutions with extortionately high interest rates, there are other options. Do think long and hard before you enter into any type of credit agreement, as it could harm you financially – both in terms of your credit rating and how you manage to make it to payday next month.

Please speak to someone who can give you free, impartial debt advice before deciding to lead you into debt or if you are already facing financial troubles.

Do not feel like you are doing this alone because you aren’t.

Contact Stepchange (call free from a landline on 0800 138 1111 or go to their site and ask for a free callback) or National Debtline (call them for free from a landline on 0808 808 4000 or use their online web chat service).

Sell your stuff

If you’re looking to make a bit of cash quickly, selling some of your unwanted bits and pieces around the house could be just the option you need – without getting yourself into debt.

If you’re after the cash in a hurry, selling on somewhere like eBay won’t see a quick return (unless you’re selling locally), as you’ll need to wait for the item to sell via auction and for someone to transfer the money to you.

Quicker options could be somewhere like Gumtree or your local Facebook page. This won’t necessarily guarantee you a sale, but you should be able to get a fairer price for your item.

You could always try pawning your items but don’t expect to get anywhere near the value. Pawnshops know you’re most probably in desperate need, and they will take advantage.

Cancel non-priority direct debits

Look at your bank account and determine what payments you have coming out shortly.

You will not want to cancel your mortgage, rent, council tax, utility bills, or debt repayments, but could you cancel a gym membership, magazine subscription, or something else that may not be a priority to keep your head above water financially?

Borrow from family and friends

Instead of turning to credit to get you out of a jam, consider asking for a loan from your friends and family. If you are having ongoing money troubles, they may be able to lend you some cash to help in the short term, but it certainly isn’t a long-term fix.

You need to work out how you will pay them back and that you can afford to do so. If you don’t pay them back when you say you will, it may affect how they spend their bills, and if you don’t pay them back at all, it could seriously damage your friendship, so don’t take it lightly.

Use an authorised overdraft

If your bank account offers the option to use an overdraft, it may be time to consider using it or asking the bank for an extension. This will cost you and will be different depending on who you bank with, but you could be charged up to 20% interest.

If you use your overdraft and go into your unauthorised overdraft, you will get charged the next month – very heavily!

The money will come out of your account, and you will have no choice but to cancel the payment. It will be expensive and can easily let you slip into recurring financial trouble.

You could get trapped just as much as using a payday loan.

Borrow from a credit union

Consider applying to your local credit union for a much lower interest rate loan.

Credit unions are not-for-profit organisations that allow members to save and borrow money, protecting your deposit of up to £85,000 with the Financial Services Compensation Scheme.

You can use this tool to help find your local credit union.

Ask for a wage advance

If you are employed, you could ask your HR department if they will give you an advance on your wages.

You will either have to pay this back in a lump sum in your next pay packet, or you could ask if they will allow you to pay it back over a few months.

Either way, you probably won’t have to pay any interest, but they may ask for an administration fee to cover the bank transfer costs.

You can get a salary advance with some employers, which different companies run.

You will need to pay a fee for this, and they can sometimes work out as expensive. They are also unregulated.

Apply for a budgeting loan

If you receive certain benefits, you may be eligible to apply for a budgeting loan to cover the costs of things like furniture, clothes, moving expenses or hire purchase debts.

Or you may be able to claim a budget advance to cover irregular expenses, like an emergency expense.

Local welfare assistance scheme

If things are terrible and you can’t manage day-to-day expenses like food and bills, then you could apply to a local welfare assistance scheme.

Each scheme varies depending on where you are in the country and offers different things.

• In England, find your local welfare assistance team via your local Citizens Advice or local council (not every council runs the scheme)
• For Scottish residents, you have access to the Scottish Welfare Fund
• If you live in Wales, you can apply to the Discretionary Assistance Fund
• If you’re from Northern Ireland, you may be eligible for a Discretionary Support Fund.

Make money

There are a number of ways to make money fast, rather than trying to borrow it.

It all obviously depends on how much you need and how much free time you have, but it’s worth considering the options.

Use a credit card

If you already have a credit card but have maxed it out, you could ask to increase your credit limit.

Again, you will be charged interest but not as high as if you were to take out a payday loan.

If you can’t pay back the total amount at the end of the month, you will pay interest, and it will take you a long time to clear off the debt.

Unsecured personal loans

Unlike payday loans, unsecured loans typically come with lower interest rates and with longer repayment terms.

They are based on creditworthiness and offer a range of loan amounts that can cater to various financial needs, from consolidating high-interest debt to covering unexpected expenses.

If you have bad credit, the likelihood of being accepted for a personal loan are generally low.

Don’t just apply and hope, as credit applications can damage your credit history. You can carry out a “soft search” first to see if you will be accepted, and what the repayments will look like.

As you can spread repayments over a longer period, you may find that you can manage finances more effectively without the pressure of immediate, lump-sum repayments required by payday loans.

The amount you will be offered to borrow will be a lot higher than you might need. However, if you pay it off faster, you will only pay interest for the period you borrowed the money for.

What is a pay day loan?

Pay day loans are designed to be a short term way to borrow money if you have something happens that you’ve not budgeted for.

You can usually borrow from £50 – £1,000 for up to 30 days, then pay the money back in a lump sum when you’re paid.

They are EXPENSIVE, with interest rates in the thousands, meaning they cost you a lot of money, and it’s easy to fall into a trap of needing to get one the following month.

Final thoughts

Being in dire financial difficulty is hard.

It’s horrible, and a lot of the time, it can feel like it’s the end of the earth, but there is help available without turning to a payday loan.

I promise you that you can get out of the trap of using payday loans (although it is not easy) and live without them. It takes time and hard work, but it really is possible.