Other options to using a payday loan

Payday loans are intended to cover a short-term requirement for extra cash. Consider these options if you need a longer-term loan:

Personal loans

Personal loans are ideal if you want to borrow more than £1,000 over a term longer than 30 days, and you have a good credit rating. However, lending criteria are stricter, and you may need a guarantor for the loan. It usually takes several days to arrange a personal loan, which makes them unsuitable for paying urgent expenses. On the plus side, the interest rate is a lot lower.

Borrowing from friends and family

This option is ideal if you only need to borrow a small amount of money as interest is unlikely to be charged. However, your friends and family might not be able to help if you need a larger sum immediately. If they do lend you money, family relationships could be damaged, or friendships lost if you fail to pay the debt as promised.

Salary advance

A salary advance is not a loan, you are taking an advance on next month’s salary. Come next payday you will have less money than normal to see you through the following month. Your employer may not offer this facility, which is entirely at their discretion. Many employers who do offer a salary advance limit the amount you can have advanced, and often only permit one such advance a year or restrict it to the Christmas holiday season. Because there is no interest to repay, a salary advance may be a more attractive way to cover emergency expenses than a payday loan. However, but there is no guarantee that an advance will be made.

Borrowing from your pension fund

You can draw down money from your pension fund. However, the process is time-consuming, which makes it unsuitable to cover emergency expenses. The real cost of taking money from your pension fund is that you will have less money to retire on. Because of the way in which pension investments work this cost can be far greater than the cost of a payday loan, which is much easier and quicker to obtain.

Credit cards

If you have a credit card and enough credit available, you can use it to cover an emergency expense. This is not an option if you have insufficient credit available or do not have a credit card. However, even if this option is open to you, many credit card companies charge higher rates of interest on cash advances, especially if it is not repaid in full by the next payment date. These charges will be even higher if you miss a payment or exceed your credit limit. A payday loan may be a more cost-effective solution to raising short-term emergency funds than using your credit card.

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