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Alternatives to payday loans
Posted on January 29, 2020

Alternatives to Quick Payday Loans

payday loan picture

Easy, quick payday loans are the main culprits behind why an increasing number of people continue digging themselves further into more debt. In the UK, the household debt stands at an estimated £1.28 Trillion. Seeing as this number continues to rise rapidly, it appears that more people are having a hard time settling their debts.

When you take a quick payday loan, it should be a one-time thing to help get out of a rut. But as it is, people take multiple payday loans and use them as a means to finance their lifestyles. This poor habit ends up deeming many fully dependent on loans. Eventually, they are unable to pay their cumulated debts.

So what is the better solution to quick payday loans? Are there other friendlier ways of accessing money when you fall short? Here’s a list of six alternatives to quick payday loans.

  1. Credit Union

credit union

A Credit Union is a financial institution or a cooperative where members can make contributions and borrow money. A short term credit union loan can be as low as £50 or as high as £3000. When you are a credit union member, you have access to short term loans that are of low value.

See, quick payday loan companies present high interest, high-value long and short term loans as they are in it to make profits. A credit union, on the other hand, is focused on lending you a hand as opposed to maximizing profits from its borrowers.

What’s more, Credit union loans have a significantly lower Annual Percentage Rate-APR than quick payday loans. You will, therefore, pay much less interest if you take a credit union loan and pay more interest if you choose a payday loan.

There are over 500 credit unions in the UK. This gives you a lot of options to choose from, plus it enhances your chances of eligibility to join, provided your financial history, and credit score isn’t questionable.

  1. Bank Loans

Bank loans

Joining a bank is easy if you want it to join in as an account holder. However, the same banks tend to have strict criteria upon which you can prove eligible as a borrower. For example, they look at your income and compare this to the amount of money you want to borrow. It is for them to see if you can comfortably pay and simultaneously finance other basic and non-basic needs. They also review your past credit history, your history of repayment on previous loans, and the amount of debt you currently have.

If you qualify, you can borrow loans from £7,500 to £15,000. What makes bank loans the better alternative to quick payday loans is that they offer an APR as low as 3.7%. Which is much lower compared to the APR you can get from a quick payday loan.

  1. Borrow From Family and Friends

When worse come to worst, you have to put your pride aside and ask your friends and family members for financial help. Be sure to mention that you are asking for a loan that you will repay and not for a handout. Most friends and family members are inclined to assist you with some money if they know that they will get it back.

You also have to exercise responsibility by paying the money back as soon as you can. This helps build trust among your family and friends. They won’t hesitate to give you money again in the future if they already know that you will pay them back. Plus, you don’t want to burn bridges and ruin genuine friendships because you refused to honor your promise to pay their money back.

  1. Overdraft

An overdraft is an excellent option because it is interest-free. Some banks do attach a small interest to their overdrafts if you are a ‘risky’ borrower. This is only meant to protect their interests should you dishonor your repayment schedule. Even so, the interest rate is far much lower than that offered by payday loan institutions. It is advisable to conduct prior research with your bank or other financial institution before applying for an overdraft. This gives you a chance to know how much in total you will repay.

If you are currently a student having a hard time choosing between taking a payday loan or an overdraft, you will be glad to know that most students are eligible for interest-free overdrafts. In fact, your overdraft amount increases with every year of study. For example, if you borrow £1000 in your first year of study, your overdraft limit increases to £2000 in your second year, to £3000 in your third year, and so on.

  1. Government Support

Gov.uk

There’s a wide array of subsidized government loans accessible to UK nationals. For example, the Professional and Career Development Loan is an excellent choice for people looking for loans meant to advance their careers or who are looking for jobs.

Here, borrowers have access to loans ranging from £300 to £10,000. Government support loans have very low-interest rates. To prove eligible for such loans, you must have stayed in the UK for at least three years and be above the age of 18.

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