Alternatives to payday loans


If you are needing to borrow money and are thinking of getting a payday loan, you may not be aware of all the option available to you. You may want to avoid payday loans altogether or simply are having to luck with them, but are still in need of credit. What else can you do?

Payday loans in the UK are often considered as a quick and easy fix, but need to be handled with caution as they can lead you in more debt potentially. Furthermore, many people find it hard to actually get approved for a payday loan, especially if they do not have the best credit score in the world.

In this guide, we will be shedding light on what alternatives are out there for you in place of a payday loan. After weighing it up, you may find that a payday loan is what is best for you, or you may find an alternative which is better suited to you and your circumstances.

What is a payday loan?

Before we start, for those who are not aware, a payday loan is a type of short-term credit. You apply for however much you wish to borrow and if your application is accepted, you should receive the money within 24 hours of approval. You will be expected to pay back the loan plus interest when your next pay cheque clears. In some cases, the interest rates can be so high that it is not worth taking out the loan in the first place.

Guarantor Loans

A guarantor loan is an alternative for a payday loan, perfect for those who have a bad credit history and score.

A guarantor is a person who will co-sign a loan agreement, and agree to pay back your loan if you fail to do so. The guarantor will have a better credit score than you, which is how you will be able to get the loan at all.

You cannot simply rely on your guarantor to pay back your loan as a get out clause. If the guarantor does have to pay out, it will seriously affect your credit rating and how you can take out credit in the future. You should only fall back on your guarantor in the worst-case scenario.

Collateral Loans

In the case of a collateral loan, you will pit an asset against your loan to help you secure it. You will be agreeing to hand over an asset such as a car or your home to the loan provider if you fail to make the repayments.

The lender, upon acquiring your collateral after you fail to pay, can legally sell your former asset which has now become theirs. The sale of your former asset will be used to pay for what you borrowed but could not pay back.

Like guarantor loan, collateral loans are designed to allow people with bad credit score to obtain finance. If this is the case for you, you should find no problem getting approved for a loan as you will be seen as less of a risk when you offer up collateral.

Borrowing from friends and family

For people who shy away from loans in a traditional capacity, borrowing from friends or family may be the best option. Yes, some people feel awkward asking, but borrowing money this way can help you to avoid further debt as you are not likely to be charged interest by your friends or family. As mentioned, some lenders will charge very high interest rates which can be difficult to cope with.

Borrowing from family can be a few pounds here and there to more substantial purchases such as a car or deposit on their first property, which is very common in the UK.


It must be said that when borrowing from friends and family, that you should be wary about causing tension as money is one of the most frequently argued about topics. To make sure that you avoid this, you should set down terms which you both agree on. This should include the amount and when you are going to pay it back. This should be put in writing so that either party can refer back to the agreement if there is any confusion or dispute at any point.

The Guardian explains how contracts between family are better for large expenses, otherwise it can lead to tension, resentment and in some cases, legal battles.

Credit Unions

Credit unions are often an overlooked alternative to payday lenders. They offer a range of savings accounts, current accounts and of course, loans to their members. Essentially a credit union is “run by members, for its members” and therefore credit unions only offer loans to their members. Some union will insist that you have to have been in the union for a set amount of time before you will be expected, whereas others accept applications from new members.

Credit unions are also not-for-profit and are formed by people who are all tied by something they have in common. This could be the area they live in, the industry they work in or something like a church or a trade union.

Although they are underrepresented, they are completely legitimate. In fact, credit unions are authorised and regulated by the Financial Conduct Authority (FCA).

Quick money

Whilst a payday loan involves getting a few hundreds pounds and getting it fast, there are other ways to do this, other than applying for a loan. Our homes are filled with things that we do not use anymore, but others are willing to pay good money for. This includes clothes, CDs, books, DVDs and more.

Whether it is going to a local car boot sale on the weekend or selling your items through Gumtree, eBay or boot sale apps, it can be a practical way to sell something you no longer use and still get money for it quickly. You can always have an account for various reseller websites and just ‘keep them on ice’ and ready for when you need to sell something.