Alternatives to payday loans

Money Advice Service

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. It can also affect your credit rating if you don’t pay it back on time.

Borrowing to pay for everyday essentials

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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’s no need to spend money paying a debt management company to help you sort out your money worries.

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 do this, you’ll 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.

To find out where your money goes each month:

Find out more in our guide What if you can’t afford to save?

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. The Finding Finance is run by Responsible Finance, the membership body for responsible lenders.

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.

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If you’re struggling with money, you can talk to someone today, online, by phone or face to face. We have specially trained advisers who can help you start sorting out your financial problems.

Find free, confidential advice now using our free debt advice locator tool.

If you’re 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.

To find out more read Overdrafts explained.

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.

An interest-free loan from the Social Fund

If you desperately need to borrow money and you’re claiming benefits, you might be able to apply for an interest-free Budgeting Loan from the Social Fund.

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:

This article is provided by the Money Advice Service.

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When we set out to build Rest Less Money, we wanted to be a trusted place where you could find helpful information about financial matters affecting the over 50s. As a free to use resource, we try hard to provide the best information we can, but we cannot guarantee that we won’t occasionally make mistakes. So please note that you use the information on our site at your own risk, and we can’t accept liability if things go wrong.

Key things to remember when using Rest Less Money:

We do not offer financial advice – As a journalistic site, it’s important to know that we do not provide financial advice. You should always do your own research before choosing any financial product so that you can be certain it is right for you and your specific circumstances. If you are in any doubt, please seek professional financial advice from a regulated financial advisor.

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Accuracy of Information – We try to make sure that all the information provided on Rest Less Money is correct at the time of publishing as we want it to be the most helpful resource possible. Sadly, we are not perfect however, and so we can make no guarantees as to the completeness, accuracy, adequacy or suitability of the information available on the site.
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We hope you find Rest Less Money a useful resource and we would welcome your feedback at [email protected] on how to make it even better. For more information on any of the above you can read our full terms and conditions.

Some important information about Rest Less Money

We want you to understand the positives, but also the limitations of using our site. We operate in a journalistic manner and therefore all information, guidance or suggestions provided are intended to be general in nature, and you should not rely on any of the information on the site in connection with the making of any financial decision.

When we set out to build Rest Less Money, we wanted to be a trusted place where you could find helpful information about financial matters affecting the over 50s. As a free to use resource, we try hard to provide the best information we can, but we cannot guarantee that we won’t occasionally make mistakes. So please note that you use the information on our site at your own risk, and we can’t accept liability if things go wrong.

Key things to remember when using Rest Less Money:

We do not offer financial advice – As a journalistic site, it’s important to know that we do not provide financial advice. You should always do your own research before choosing any financial product so that you can be certain it is right for you and your specific circumstances. If you are in any doubt, please seek professional financial advice from a regulated financial advisor.

No Liability – please note that you use the information on Rest Less Money at your own risk and we can’t accept liability for how you choose to use the information given on our site. We will often provide links to content or products and services available on other third-party websites. These are provided purely for your convenience and we cannot be held responsible for any content, or any of the products and services offered on any website that we link to.

 

Accuracy of Information – We try to make sure that all the information provided on Rest Less Money is correct at the time of publishing as we want it to be the most helpful resource possible. Sadly, we are not perfect however, and so we can make no guarantees as to the completeness, accuracy, adequacy or suitability of the information available on the site.
Whilst we work hard to try and provide accurate information, deals and prices can change, so whilst they may be correct at the time of writing, providers may subsequently decide to alter them later – so always double check first.

A final note on the Rest Less Community Forums – always remember that anyone can post their opinion on the Rest Less Community Forums, so it can be very different from our own opinion and may not be factual or well researched. Always be wary of any content posted on the forums and be sure to do your own research and due diligence on anything suggested. 

We hope you find Rest Less Money a useful resource and we would welcome your feedback at [email protected] on how to make it even better. For more information on any of the above you can read our full terms and conditions.

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