Payday loan alternatives

Short-term loans can help offer a quick and convenient way to resolve temporary cash flow issues. Whether it’s an urgent vet bill or a broken-down boiler, emergency loans can help offer interim relief – so long as you can comfortably afford the repayments.

As a responsible direct lender, we offer a flexible short-term loan repayable over two to six months or in full the next time you’re paid – designed to suit your financial needs and lifestyle. But we also understand that short-term loans aren’t always the right solution for everyone.

If you’re looking for an alternative to payday loans, there are various options you might want to explore to help you find funds before your next pay cheque. Read on as we explore payday loan alternatives in the UK, including bad credit options and what to consider before applying for a payday loan.

In this guide:

• 8 payday loan alternatives 
• What to consider before applying for a payday loan 
• How can I tell if I’m being scammed?
• Where can I get free financial advice?

8 payday loan alternatives

There are other ways to secure extra funds than reaching for emergency lending. Here are a few alternatives to payday loans:

1. Emergency funds

Perhaps your washing machine has broken, or your boiler needs urgent repairs. These last-minute stresses can be a major spanner in the works. But before you consider borrowing or taking out credit, it’s a good idea to review your finances to see where they lie.

If you have a pot of savings available for rainy days, this might be the right time to use it. The interest on a short-term loan is likely to be higher than the interest on your savings account. This means that using your savings could be cheaper than taking out a quick loan. However, this might depend on the cost of the expense, and whether your savings can cover it all.

Our helpful guide can help show you how to maximise your savings and build an emergency fund for moments like this.

2. Credit union loans

Credit unions are not-for-profit financial organisations where members pool funds to offer each other credit options with low interest rates – often up to 3%. If you’re a member of a credit union, these loans can be a more affordable way to borrow money.

To join a credit union, you often have to share common factors such as:

• Living or working in the local area
• Working for the same employer
• Being part of the same church, trade union, or another type of association

In many cases, you may be able to borrow as soon as you join, particularly if it’s a small sum. However, your application will still be subject to eligibility checks that assess your income and credit score.

3. Budgeting Loans

If you’re eligible for Income and Employment Support benefits or Pension Credit, you may be able to apply for a Budgeting Loan from the government to help pay for essential expenses.

Budgeting Loans can help pay for needs like rent, furniture, and clothes, among other urgent and unforeseen circumstances. Though the minimum you can borrow is £100, these loans are interest-free, and you’ll often have up to two years to pay it off.

You can apply for a Budgeting Loan if you’ve received one or more of the following benefits for at least six months:

• Income Support
• Income-based Jobseeker’s Allowance
• Income-related Employment and Support Allowance
• Pension Credit (including if you’ve recently moved from Universal Credit to Pension Credit)

Our guide can help you find out if you could be claiming benefits if you’re not sure if you’re eligible for income support benefits.

4. Authorised overdrafts

An authorised overdraft lets you borrow money from your current account up to an agreed limit. Should your balance reach zero, you’ll be able to use that overdraft to cover any unexpected costs.  Some banks offer interest-free authorised overdrafts, which can be an affordable way to access emergency cash. However, in most cases, overdrafts will incur interest fees until you pay off the balance.

Other fees may include:

• Administration fees
• Monthly fees
• Arrangement fees

As with any borrowing, it’s important to understand the full cost of using an overdraft facility before you commit. Overdraft fees can become expensive. Make sure to clear your balance each month and keep borrowing to a minimum to help control additional fees.

If you’re not sure about your options, it’s often a good idea to seek professional financial advice from third-party organisations such as StepChange, Citizens Advice, and MoneyHelper. Learn more about the impact of interest in our interest rates explained guide.

5. Salary advances

If a sudden cost has put your finances under stress, you might be able to request a salary advance from your employer to help bridge the gap before your next payday. If your employer offers wage advances, it’s important to consider whether this is the right choice for you.

Like any loan, it may come with fees or interest, and you’ll need to be comfortable discussing finances with your employer. Wage advance loans will come out of your next pay cheque, so you’ll need to budget the following month accordingly. You can find free budgeting tools and tips in our budgeting made simple guide to help you plan and organise your monthly finances.

6. Personal loans

If you’re looking for a payday loan alternative that you can pay off over a longer period, personal loans may be another option. Personal loans often offer more favourable interest rates, as you’ll pay back the funds in fixed payments over a longer repayment term.

You’ll still need to pass relevant credit and affordability checks to be accepted for a loan. However, you can often compare your options with an initial eligibility check, which won’t affect your credit score.

7. Guarantor loans

If you have a history of bad credit, or you’re still improving your credit score, a guarantor loan can give you another chance to borrow with the support of someone you trust. When you apply, someone else will ‘guarantee’ to cover the repayments if you’re unable to – reducing the level of risk for the lender.

If you make your repayments on time, a guarantor loan can be a good way to build your creditworthiness and show lenders you can pay money back responsibly. However, some guarantor loans may have higher interest rates, also known as the Annual Percentage Rate (APR), than other borrowing options.

Alternatively, you could ask someone you trust if they could lend you money temporarily until your next funds come through. If so, it’s a good idea to have an honest conversation about how and when you intend to pay them back if they agree to support you.

8. Consider alternative credit options

If you’re looking for a short-term payday loan alternative, there are other credit options available that might be able to help tide you over until your next pay day. Credit cards can be a cheaper way to borrow a small sum to cover sudden costs. If you pay off your credit card balance within 30 days, you won’t pay interest on what you borrowed.

If you’re still building your credit history, or your credit score needs some improvement, there are credit cards designed for those with bad credit. Also known as credit builder cards, they can help you pay for immediate purchases, and if you keep up with your repayments, help you boost your credit score over time.

Our guide to credit cards for bad credit can help explain the potential benefits and considerations if this sounds like a potential solution for you.

What to consider before applying for a payday loan

Before applying for credit – whether it’s a payday loan, salary advance, or overdraft application – it’s essential to weigh up the potential costs and considerations. Ask yourself:

• Do I really need to borrow the money?
• How much money do I need?
• How much can I afford to pay back?
• How long will I be paying this back for?
• What is the total cost of borrowing?
• What fees will I incur?
• What are the potential risks?
• Will this impact my credit score?
• Is the lender regulated by the FCA?
• Are there any better options?

Read our complete guide on how to compare loans on the market to help you assess your options. Meanwhile, our payday loan criteria guide can help you break down common lending criteria.

How can I tell if I’m being scammed?

Although most direct lenders are legitimate and lawful, there are scammers who may try to trick vulnerable customers that they are regulated loan companies. How can you tell the difference between the two?

A ‘lender’ may be false if:

• They require up-front payments: Legitimate lenders don’t charge for you to apply. If a company wants a fee before you receive money, it’s likely a scam.
• They refuse to provide a receipt for your loan: You’re required to receive a receipt documenting your loan and payment plan.
• They make glaring errors: If a collection caller makes mistakes on the phone, like mispronouncing the vendor’s name or the details of your loan, it could be a scam.

You can always find out if a potential lender or creditor is legitimate by checking if they’re authorised by the FCA. You’ll find Moneyboat listed on the register under ‘Evergreen Finance London Limited’ with the firm reference number 674154.

Where can I get free financial advice?

Everyone faces challenging periods sometimes. If you’re struggling with your finances and you’re not sure where to turn, support is always just a call or click away.

If you need help understanding or resolving your situation, you can get free, confidential financial advice from third-party support charities and organisations such as:

• StepChange: Free debt management advice
• Citizens Advice: Support with money, employment, benefits and legal rights
• MoneyHelper: Help and guidance on topics like money and pensions

Discover more helpful resources

Hopefully that’s given you insight into the payday loan alternatives you can turn to when needing to cover an unexpected, one-off cost. Everyone’s financial situation is unique, so don’t forget to take a moment to pause and consider your circumstances.

Head to our Moneyboat blog for more tips and insights, including guidance on everything from how to cope with financial stress to how to pay off debt quickly.