Alternatives to Payday Loans

Payday loans have been in the media for all sorts of reason, with not all of them being good, and they were once considered the lender of last resort, but since the crackdown by the FCA this year, the industry has rapidly become the first choice for many, due to ease of access. There are still alternatives for borrowers, who find that payday loans aren’t the answer to their current financial problems:

Instalment Loans

Instalment loans are very similar to payday loans but are better if you need to borrow a larger amount of money quickly and pay it back in fixed installments over a set amount of time, rather than in one lump sum. This type of loan has a structured repayment plan and you need to know that you can afford this type of loan as it can be spread over years, rather than days.

Credit Unions

Credit unions are set up for the benefit of a specific group of people. They are seen as being somewhere between a bank and a co-operative, providing an affordable alternative to the high street banks, as they offer basic savings accounts and loans. Additional benefits of a credit union loan are that there are no hidden fees, no penalty charges, low-interest rates and borrowers can pay back loans through various channels not just by direct debit. On the other hand, because credit unions are usually focused on a certain community, making it inaccessible to everyone. Taking out a loan might also be a slow process therefore not good if you need money in an emergency.

Credit Cards

If you already own a credit card and have not reached your limit yet, you might be able to ask for a temporary extension on your credit limit. However, make sure you pay back the extra in full at the end of the month to stop any further charges. Repay as much as you can each month to prevent extra charges on debt owed or to prevent exceeding your credit limit. If you are suffering from a bad credit score, then there are still some companies who will accept your application, however, like all financial services they will charge you at a much higher interest rate than others. But as long as you pay back all or most of the balance each month, it should be a cheaper option.

Bank overdrafts

Contact your bank to see if you can have an overdraft on your current account, or to extend your current overdraft limit. The interest rate that you are offered on your overdraft will depend on your credit history. Don’t be tempted to exceed your overdraft limit without the bank’s authorisation as this will incur hefty account changes and damage your credit score. This authorised option can still be expensive, so carefully check the interest that you’ll be charged and any fees that apply.

Borrowing from friends & family

Borrowing from friends or family might sound like a really good idea at that time, but you should still be careful about doing so. Failure to repay the money when agreed can lead to serious problems in a relationship. To avoid this, keep track of the repayments and agree on a specific repayment schedule. Regardless of the amount, think about maybe having it as a written contract to avoid arguments.

Advances from Employers

Not everyone has a good enough relationship with their boss to ask for an advance on their pay, but for those that do this could be really helpful. If your boss is able to grant a cash advancement they may allow you to repay the money off over a specific time duration, it should be used as a one-off rather than a reoccurring ask. This is an advancement rather than a loan, as there is no interest and, therefore, could be far cheaper than a payday loan