Alternatives to payday loans

Many people have got themselves into a worse financial situation by taking out multiple payday loans. Due to payday loans having a high APR, they should be used as a last resort and by no means a first option to a financial problem.

There are many other alternatives to payday loans that people should consider before taking one out. Some lenders have given multiple payday loans to the same people making them dependent on taking out a new payday loan each month in order to repay the high APR due on previous loans. This is not responsible lending and this behavior could lead to a higher level of debt.

Below are some options that should be used as an alternative to payday loans.

Credit Unions

What is a credit union?

  • Saving and loan providers 

Credit unions can be an alternative to use against traditional payday loans. These are often small non-profit organisations set up by a group of people or community to offer financial support to its members. Often the members share common ground, for example living in the same community or working in the same profession. The police force, Navy and Army all have their own credit unions to offer financial aid to their members.

  • You have to be eligible to join

You have to be eligible to join a credit union, as there are over 500 credit unions operating within the UK there is a chance one of them will be suited to you. Have a look at this website to find a credit union http://www.findyourcreditunion.co.uk/home

Borrowing from a credit union

Credit unions offer short term low value loans, typically between £50 – £3000 with a much lower APR. As payday loan companies can only survive by making a profit they need to have their APR higher than that of a credit union. High street banks will not do this form of short term lending.

The reason why an individual may choose payday loans over a credit union is that to borrow from a credit union you have to be a member. Often people do not plan on borrowing and only need to get a loan when they come across an unforeseen cost.

Payday loans can be much quicker and extremely useful in an emergency situation such as a car break down.

Bank loans

You may be able to apply for a bank loan if you meet their lending criteria. Some banks  can offer a loan of £7,500 – £15,000 at 3.7% APR, this is much cheaper than taking out payday loans.

Overdraft

Many banks can offer you an interest free overdraft, this can be a good alternative to a payday loan if you haven’t already got one. If your bank will charge you interest for applying an overdraft to your account it can still work out cheaper than a payday loan, so make sure you research the rates of the overdraft and payday loan to work out how much you’ll be paying in total. If you are a student then there are interest free overdrafts available to you. The amount you can take on your overdraft increases with each year of study. For example the first year you can have a £500 pound overdraft, this can be increased to £1000 in your second year and £1500 in your third year of study.

Borrow from a friend

It may be an awkward question to have to ask but borrowing from a friend is a good option provided you are sure you can pay them back when you say. A good friend will not charge you interest and will be willing to lend you cash when you need it. Handling money between friends can be tricky if repayment doesn’t go as planned and there is a small risk of ill feelings towards each other should the situation go south.

Borrow from family

Again this can come as an awkward conversation to have. Your family will most likely prefer to lend you money than having you get into more debt with high APR’s from payday loans.

Government financial support

The government can offer a range of different loans. If you’re looking for work or would like to develop your career, then ‘professional and career development loans’ would be a good option to look at.
You can take between £300 and £10,000 at a reduced interest rate. You will have to be over 18 years of age and living within the UK for over 3 years. For full details on how to apply visit the gov.uk website here.

University loans

The payday loans industry has been given a huge amount of bad press over the years. One of the reasons for this is due to some lenders giving loans to students, who are most likely not in a financially stable situation considering the costs involved with university courses. The aim of a payday loan is to help someone as a last resort, and not to get them into more debt. Payday loans can seem attractive as a student as the money is available quickly with little hassle.

If you are a student and considering a payday loan, you should first explore the government student loans as an option. The government will support you in your studies if you are a UK citizen up to a certain amount per term. If you already have one of these student loans or are a foreign student then speak to your University for help. Many Universities can offer financial support as they would much rather you took a 0% interest loan from them than get yourself into more debt.

If there really is no alternative to a payday loan

If you have explored all other options and still can’t raise the money you need then you may feel a payday loan is right for you. The advantage of a payday loan could be in an emergency situation such as a car break down. Wizzcash.com is one of the cheapest lenders in the UK, offering one of the lowest APR to help you get back on your feet.

Debt management agencies

If you are really struggling financially and have an unmanageable amount of debt then you should consider contacting a debt management agency to help you reduce and manage the debt.