Last updated: 22/10/2020 | Estimated Reading Time: 5 minutes
Payday Loan Alternatives
If you’re in a tight financial spot, and thinking of taking on a payday loan to help make ends meet, you may want to take a moment to consider the other options available to you. Payday loans are very easy to set up, but they tend to become a problem debt for many people in a very short period of time, and failure to pay back a payday loan on time could also have an effect on your credit rating. This guide will help you to explore the payday loan alternatives that are out there.
In This Guide:
- Credit Union Loans
- Social Fund Budgeting Loans
- Cash Advance from Employer
- Borrowing Money from Family or Friends
- Borrowing Money on a Credit Card
- Authorised Bank Account Overdraft
- How can I find the best loans?
Credit Union Loans
Credit union loans are often seen as being the best alternative to taking on a payday loan. These loans are usually offered at a low interest rate, and unions tend to be more willing to lend to people who have already been refused by other major lenders.
There are various different credit unions with differing criteria that need to be satisfied in order to qualify for a loan.
Some credit unions are more open to lending to people working in a particular sector or industry, living in a particular location, or that are members of a particular organisation or group.
It isn’t always the case, but you may need to have invested in a credit union before you’re entitled to a short-term loan. This investment usually takes the form of a credit union savings account.
Always check the criteria for each credit union before you make an application, but be mindful of the fact that many credit unions have a long waiting period for loan applications.
Social Fund Budgeting Loans
The Department of Work and Pensions’ Social Fund offers a specific type of loan known as a ‘budgeting loan’.
The loan is interest-free, but is only available to those who have been claiming specific benefits for 26 weeks or more and can only be used for specific purposes. If you’re eligible, social fund budgeting loans are a much better alternative to payday loans.
Cash Advance from Employer
If you’ve found yourself with an unexpected bill and just need a bit of extra cash to tide you over until your next payslip comes through, then asking your employer could be a good option.
An employer cash advance isn’t too dissimilar from taking out a payday loan - the loan repayment will come out from your next payday. However, unlike a payday loan, you won’t be charged any interest or admin fees.
Of course, not everyone is in a position to ask their employer for a cash advance, but if you have a good relationship with your employer it could be a much cheaper way of borrowing money than taking out a payday loan.
Your employer could even be happy for you to repay the loan over a few months, or offer you overtime to help cover the costs.
Borrowing Money from Family or Friends
Borrowing the money you need from a friend or family member can also be a good option if it’s available to you.
Beware though, failing to repay the loan can put a strain on relationships. If you do opt to go down this route, make sure you agree on a set repayment schedule, and keep track of repayments, so that you can avoid any conflicts or misunderstandings.
Borrowing Money on a Credit Card
Borrowing money on your existing credit card can be an expensive way to borrow money, but it is still an option for cash withdrawals or purchases. You’ll need to make sure that you pay back as much as possible in order to keep the overall cost of the debt to a minimum.
If you can find a credit card with a 0% interest free period this could be a much better alternative to a payday loan. Just be sure to pay back the debt before the higher rate of interest kicks in once the interest-free period ends.
Authorised Bank Account Overdraft
An authorised overdraft on your bank account will allow you to go into a negative bank balance up until an agreed limit. Most of the time you will be charged a daily fee, or interest, for utilising your overdraft. This could result in a credit card or loan being cheaper.
Having said this, if you’re strapped for cash and don’t have the time to mess around, contacting your bank to set up an overdraft can be a much quicker solution than others. If you do have time though, and still want an overdraft facility on your bank account, you should consider switching to a bank account that includes a 0% interest overdraft. This way you can borrow the money without being charged for the privilege.
Before you go into your overdraft, make sure that you have an authorised overdraft in place. If you go into a negative balance on an unauthorised overdraft it can cost considerably more as there are extra charges and fees, along with much higher interest rates.
How can I find the best loans?
If you’ve figured out what kind of payday loan alternative you’d prefer to opt for, you’ll still need to find yourself a good deal. This is where we can help. Just enter the requirements of your loan into our handy loan comparison tool, and we’ll automatically search all the available loans to find the very best one that meets your needs. It will save you time, money, and headaches!