Payday loans are not for everyone. However, if you don’t have savings and you find yourself having a cash flow issue what can you do? It used to be that the only options were to ask friends or family for help, especially if mainstream loans simply weren’t available. However, today there is a lot more choice when it comes to getting quick access to cash. If you’re struggling but you don’t want to apply for payday loans then there are other alternatives.
Look for a 0% credit card
Even if you have a poor credit score it may still be possible to get a credit card with a very low-interest rate. Although a lower credit score may mean a shorter 0% period it will still usually offer more flexibility than a payday loan with considerably less interest too. There are a number of ways to check whether you’re likely to be eligible for a 0% credit card before you make the application so that you don’t further damage your credit score – search online for an eligibility checker. Key to remember is that interest on 0% cards often increases substantially when the initial offer period comes to an end so it’s crucial to clear the balance before then.
Get a pay as you go wages scheme in your workplace
Wagestream is an app, authorised by the FCA, which essentially allows employees to access wages as they are earned, as opposed to just at the end of the month. The app charges a flat fee of £1.75 for this with no interest payable on any amounts that are withdrawn in advance. The app is relatively new – it launched in January 2018 – and requires employers to be signed up to it in order for employees to be able to use it. However, no changes to payroll are required and it has already attracted many big employers, from Hackney Council to Camden Town Brewery. It’s also backed by the likes of Bill Gates. Wagestream allows employees to essentially take a part of their salary early. Employers can set limits to ensure that staff don’t get into trouble (e.g. 30%) and employees have more flexibility over how they manage their cash and don’t need to turn to payday loans.
Join a Credit Union
The big difference between banks and credit unions is that credit unions are not for profit. As they are authorised and regulated by the FCA credit unions are also covered by the Financial Services Compensation Scheme. Most credit unions are able to offer borrowing at lower rates than you’d get with a payday loan. The only catch is that you need to be a member of the credit union in order to be able to borrow. All credit unions set eligibility criteria – usually, that means having something in common with the other members, such as where you live or who you work for. Membership can usually be established with a small deposit after which you’ll be able to apply to borrow.
Community development finance institutions (CDFIs)
For those who find it difficult to borrow from mainstream lenders, CDFIs have been designed to provide support. These are socially responsible enterprises that are committed to providing responsible, affordable lending to consumers. Although many CDFIs were set up to provide business finance, in 2018 they also made 45,900 personal loans including 23,230 to individuals who had in the past resorted to a high-cost lender instead. CDFIs are represented by Responsible Finance, which has 70 members in total.
Government and council funding options
A government budgeting loan. This is available to anyone who has been receiving specific benefits, including Income Support, Pension Credit, Employment & Support Allowance, or Jobseeker’s Allowance, for at least six months. The government loan is interest-free and can be used to pay for anything, from a single one-off expense to ongoing responsibilities. The maximum amount available as a government budgeting loan is £812.
Local authority welfare assistance scheme. This is not an option available to everyone but, if you’re eligible, it’s a far better alternative than applying for payday loans. Each local authority runs their own scheme and most are only available to people on very low incomes who are in financial difficulty.
So it’s clear that payday loans aren’t the only option if you’re looking for short-term borrowing to help deal with a cash flow issue. There are a number of different alternatives available, most of which will generate lower interest charges and leave you with lower liabilities to deal with in terms of what you owe.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley