Alternatives to payday loans: cheaper ways to cover a gap

A payday loan is quick, but it’s rarely the cheapest way to cover a gap. Some of the options below cost less. Some cost nothing at all. They can take longer, so start them first.

A credit union loan

Credit unions are not-for-profit lenders owned by their members. Many lend small amounts and look at your circumstances, not just your credit score.

Credit unions can charge no more than 3% a month (42.6% APR). The cap is set under the Credit Unions Act 1979. HM Treasury raised it to 3% a month from April 2014.

You usually need to join first, and some ask you to save before you borrow. A decision can take a few days. Find your credit union by postcode.

An arranged overdraft

If you already have an arranged overdraft, there’s nothing new to apply for. Since April 2020, banks have charged overdrafts as a single annual interest rate, with no daily or monthly fees. Check the rate in your banking app and compare it with any loan you’re offered. Ask your bank before you go past your limit.

A Budgeting Advance if you get Universal Credit

If you get Universal Credit, you can ask the DWP for a Budgeting Advance to cover a one-off cost. That might be a cooker, furniture or a rent deposit.

It’s interest-free. You repay it out of your future Universal Credit payments, so those payments are lower for a while.

You usually need to have been on benefits for six months. That doesn’t apply if the money helps you start or stay in work. Ask through your online journal, your work coach or the Universal Credit helpline. GOV.UK explains who can get one.

If you get Pension Credit or certain older benefits instead, ask about an interest-free Budgeting Loan.

A salary advance from your employer

Some employers will pay part of your wages early, either directly or through an app they’ve signed up to. App-based schemes can charge a fee for each withdrawal, so check before you use one. Whatever you take comes out of your next pay, so plan for a smaller payslip.

Help from your council

Many councils run a local welfare or crisis scheme. It can help with essentials such as food, energy or a broken cooker. In England, help is often a grant or goods, so there’s nothing to repay.

Scotland has the Scottish Welfare Fund and Wales the Discretionary Assistance Fund. In Northern Ireland, Discretionary Support is usually an interest-free loan. Search your council’s website for “local welfare” or “crisis support” to see what’s available.

In England and Wales, a debt adviser can also apply for Breathing Space for you. It pauses most interest, charges and enforcement on your debts for up to 60 days.

If you still need to borrow

If none of these covers the gap, compare short-term loans on the total you’ll repay, not the APR. Our guide to APR explained shows how. Payday UK doesn’t lend; we’re a credit broker that searches a panel of lenders. Approval is never guaranteed, and every lender checks you can afford the repayments. Check the eligibility criteria before you apply.