Refused or want to avoid a payday loan – the alternatives

It’s become harder to get a payday loan as large, medium and small payday lenders have gone bust or just stopped lending. Here are some of the biggest names you may have heard of:

• Payday UK, Payday Express and Cheque Centres in 2017;
• Wonga and the Money Shop in 2018;
• Wageday Advance in 2019.

So where can you go if you need a loan and you are refused? Or if you simply want to avoid the horrendous payday loan interest rates?

The alternatives to payday lending – other loans

You can divide alternative lenders roughly into three sorts

The good – ethical lenders

Most of the ethical options aren’t “cheap”. Without a good credit record, no-one is going to lend you money at 5% interest. But they are a lot less expensive than payday loans. And they are simply nicer to deal with than the large high-cost commercial lenders and guarantor lenders who can be very quick to offer you top-ups you can’t afford and aggressive if you get into trouble.

Even if you haven’t got a great credit record, it may still be possible to get credit from a local credit union or ethical lending initiatives. They tend to adopt a more personal approach, rather than “computer says no”. Many are small and local:

• Find your local credit union here.
• Five Lamps is based in Stockton and has online lending through its Conduit brand in England and Wales and in Scotland.
• Scotcash has branches in Glasgow but also offer online loans.
• Purple Shoots offer loans to small business in South Wales.
• Street UK offers loans to people living within 5 miles of its branches in Birmingham, Walsall, West Bromwich and Wolverhampton.
• If you need to replace white goods, look at Fair For You. Their interest rates are lower than BrightHouse, the basic price of the item is not a rip-off and the delivery and other costs are a lot lower.

The bad – other high cost lending

Guarantor loans such as Amigo, logbook loans and “rent to buy” shops such as Brighthouse are a real problem and make it much harder to deal with your debts in the future, see these Debts are Dangerous for details As a debt adviser, I would far rather see a client with payday loans than guarantor loans or logbook loans!

Also to be avoided are the high-cost commercial lenders such as 118 money, Everyday Loans, Likely Loans, Avant Credit. People often use these to try to consolidate payday loans – but at 40-99% interest rates, large loans over years trap you into long-term unaffordable debt.

And I have seen people trapped into borrowing from Provident and other doorstep lenders for five, ten or more years. At interest rates of hundreds of per cent.

If you have debts that you can’t manage to repay without borrowing again, you need to make payment arrangements with the lenders and put in affordability complaints, not consolidate them into other sorts of expensive debt.

The frankly terrifying

This is illegal money lending – often called loan sharks. The man at the corner shop or the woman in the school playground may sound friendly, easy and flexible when they offer to help you out with paying a big bill or covering new school uniform costs but you have no protection at all with these unregulated and illegal lenders.

Interest-free alternatives to payday loans

Universal credit – advance payment

If you can’t see how to survive the first few weeks with no money until you get Universal credit, ask for an Advance Payment. This is an interest free loan that is later deducted when your UC starts being paid.

Benefit delays, sanctions or other problems

If you’ve applied for JSA, ESA or Income Support but it hasn’t yet started, ask for a Short Term Benefit Advance at your Job Centre. These are interest-free loans that can be paid in a few days. There is no publicity about them and not even a form to fill in, but they do exist! If your JSA or ESA has been sanctioned, you can apply for a Hardship Payment at your Job Centre.

Budgeting loans

If you have been on JSA, ESA or Income Support for 6 months, you may be able to get an interest-free budgeting loan – fill out the form here to apply.

If you have been on Universal Credit for 6 months, you may be able to get a Budgeting Advance.

Local Welfare Assistance Schemes

These can sometimes help families on benefits, low incomes or waiting for a benefits decision/appeal. You may be able to get vouchers to pay for food, fuel or clothing or bigger basic living items such as beds, cookers and fridges. You can’t usually get cash. Contact your local council and ask if there is any help available.

Loan from your family

Work out what you can really afford to repay, don’t be too optimistic about this, and suggest that you set up a Standing Order to repay them. Obviously don’t think of borrowing from your mum if she is struggling on her pension!

Don’t ask someone to take a loan for you. And NEVER ask someone to guarantee a loan for you.

Foodbank vouchers

If you are confused about what benefits you might be entitled to or why a benefits application has been refused, go to your local Citizens Advice Bureau – they will be able to help with benefits advice and also supply a foodbank voucher if you need one.

You can also ask a GP, Social Worker or a Children’s Centre for a foodbank voucher.

Help for students

If you are a student, talk to your college/uni about whether you can get a hardship grant. Payday loans are a disaster for students who have no chance of repaying them and not having to borrow again. there are some payday lenders that deliberately target students – they are just as difficult to deal with, don’t be fooled that they are student friendly just because their website mentions how hard life is as a student a lot.

Find a way to avoid borrowing

Postpone buying the fun stuff

Payday loans have been advertised as a way to pay for “the fun stuff” – things like nights out with your friends, new clothes or holidays. But these need to be paid for from your income each month, not by getting loans.

Borrowing only makes sense for large items that are essential. Everything else you need to save up for. Boring? Well perhaps, but you know it makes sense… Struggling with payday loans turns out to be a lot worse than boring – you are caught in a trap where large amounts of your income is going in interest repayments each month, so you can afford even less.

End the debt cycle

Stop! Borrowing more money to repay another debt means your debts are getting bigger and harder to tackle every time. You do have alternatives, they may not seem nice but borrowing more is only making things worse:

• if you have a payday loan that you can’t pay without needing to borrow again, phone the lender up and ask to arrange an affordable repayment plan. They aren’t allowed to keep on adding huge interest and other charges because there is a legal limit – called the payday loan cap – which says you can never pay more in interest than the amount you borrowed;
• if you have other debts, could you manage them if the interest was frozen? Read how debt management can help;
• if your debts are impossibly large have a look at the possible options then call National Debtline for advice on what you should do.