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Payday loan best buys?

Check cheaper alternatives first

Pay DayNeed some quick and easy cash? A payday loan feels easy, but this short term high cost credit can get you into an expensive nightmare – risking scarring your finances and leaving you repaying many times more than you borrowed.

We don't like payday loans. Most people who get them shouldn't. Yet if you're considering one, we want to ensure you can protect yourself. The first step is to consider cheaper alternatives. If that fails, we'll take you through the least nasty of a bad bunch.

Payday loan costs to be capped from January

In November 2014, the consumer credit regulator announced it will cap the cost of payday loans from 2 January 2015. We're incorporating the new rates as and when lenders change them, but in the meantime, you can read about what the cap will do in the payday loans to be capped by watchdog news story.

10 payday loans need-to-knows

  • They're high cost, short term loans with more tricks than Paul Daniels

    Payday loans are short-term lending often used by people to tide them over until payday. They're often very easy to get – some even do it on mobiles while drunk which makes them feel convenient. But it's that very ease which is the danger. If you don't think about what you're doing, it can be a nightmare.

    What do I need to watch out for with payday loans?

  • Payday loans charge more for a month than credit cards do for a year

    Payday lenders usually charge a fee instead of an interest rate. Typically, a £100 loan for a month has a fee of around £30, so you need to repay £130. To put that in context, if you borrowed the same amount on a bog-standard credit card at 20% APR, then provided you didn't miss any repayments, it would cost £20 to borrow £100 for a YEAR - £10 LESS than payday lenders charge for just one month.

  • 1,000%+ APRs are mostly meaningless apart from as a welcome scare

    If you express the typical charges payday lenders make as APRs most work out as over 1,000%. This is a useful warning against what can be dangerous products, but these APRs are mostly meaningless. That's because if you borrow over a very short term, even a small fee can become an astronomical APR.

    Why do they have to put these APRs if they're meaningless?

  • If you're regularly getting payday loans, there's a problem

    Payday loans should never be used as a way to fill the gap between your incomings and outgoings in a month. If that's happening to you, there's a fundamental problem that a payday loan will only make worse not better. The most important thing to do is to sort out a budget, to try to balance your costs and income.

    It's very easy to get one payday loan for a small amount, then another the next month, and before you know it, you're in a debt spiral, as happened to forumite leopardxgirl:

    About 8 months ago I borrowed around £90 to pay for a train ticket to see my now ex-boyfriend. What a slippery slope that was. I'm now approx £3,500 into payday loans across four payday lenders. I seem to have got myself into a horrible situation where I can only barely afford the interest repayments on these darn things every month.

  • If you can't repay it on time, you can't afford to get one

    If you do go for a payday loan, the crucial point is that you know how you are going to pay it back. If not, then you can't afford the loan. No matter how desperate you are, the end result will leave you much worse off (see payday loan alternatives).

    If you feel desperate and that it's your only option, even though you aren't sure you'll repay it, you'd be far better getting one-on-one debt counselling help from a non-profit debt counselling agency.

  • Beware the rollover – it's only a lottery win for lenders

    Some payday loan companies actively encourage you to roll over your payments - where they extend the time over which you are borrowing the money, and hit you with more interest for the privilege. Beware any lender who encourages you to roll over your loan for another month.

    What happens if I roll over my loan?

  • Borrowed once? They'll try to seduce you again

    If you do repay on time, there's still a big danger lurking. The payday loan company knows you're a 'good' customer - it's successfully made money from you. So it knows if it lends you more money you're likely to be able to repay, making it even more money.

    This is a major concern. You may have only taken a £100 loan to pay a few bills until your next payday. Then after repaying, the lender tries to tempt you by offering a larger amount with even bigger charges. Always resist this, even if you're offered a 'discounted fee'! It's often just a ploy to get you to borrow more.

  • Payday loans can hit your ability to get a mortgage - even if paid on time

    Apply for any credit, and lenders 'score' you to predict your likely behaviour. They use data from credit reference agencies as part of this (see the Credit Scores guide). But a payday loan on your credit report can have a striking effect. All credit reference agencies differentiate payday loans on your credit report. They’re in a different section, so underwriters (who make lending decisions) can tell how much and how often you've used payday loans.

    Can payday loans stop me getting a mortgage?

    My lender says getting a payday loan will improve my credit rating. Is that true?

    My payday lender advertises 'no credit checks'. Isn't that a good thing?

  • They'll take your (or parents'/friends') money whenever they want

    A common tactic of payday lenders is to ask you to pay using something called a continuous payment authority (CPA, also known as a recurring payment). This is where you tell it the 16-digit number on the front of the card. This gives the lender the right to take a payment whenever it wishes. For those on the brink of being able to pay their bills each month, this can be perilous. A commercial lender swooping in and diminishing your bank balance may mean you are unable to pay something else, possibly a priority debt like council tax.

    How can I cancel a Continuous Payment Authority?

  • Payday lenders can be bad – loan sharks are 1,000x worse!

    Payday loan companies, though they may lay traps for you, have a credit licence (check at the FCA Consumer Credit Register). So if things go wrong, you have some limited room for recourse. But loan sharks are a completely different beast. They're unlicensed, they break the law, often go knocking door-to-door and at worst use they horrific methods - including violence and threats of violence against the borrower or their family or children - to get their money repaid.

    How do I report an illegal loan shark?

Real life payday loan experiences it could happen to you...

'£1,000 loan cost me £4,000'

My payday loan spiral started in 2010/11. It started with one payday loan, which I failed to repay on the repayment date due to an unexpected bill.

I then thought stupidly to borrow from another lender and again, couldn't afford to repay. I borrowed £1,000 from different lenders, but in the end it cost me over £4,000.

You may think I'm stupid, but it happens and you can't control it; it makes you feel helpless and depressed.

Happily my family could afford to pay my debts for me (which I am paying back now). Some people aren't as lucky and can't get that help, so before you take out one of these ludicrous loans that could possibly destroy your finances, stop and think... 'Do I really need that money?

'Smallloanturnsbigdebt'
'I have to keep taking it out each month'

I originally got a payday loan because my son was in hospital and it costs me about £30 a day in parking, petrol and food when he is in there!

I started off borrowing £120 and have to keep taking it out each month. But with interest it's £175, so I took that out then next month £220 and I am up to £388 because I can't manage without that money each month!

Kelly

Not everyone gets into difficulty with payday loans. Some people use them, pay them back on time, and don't take another out...

'Would use it again'

Needed to pay a bill before payday was due, found it fast and friendly, but you HAVE to pay it back when you say. If you can't, tell them and get an extension, would use again.

Dave

Have you had a payday loan experience you'd like to share?

Join the payday loans discussion in our forum to tell us your thoughts or complete the Citizens Advice survey.

The 'can I find the cash elsewhere?' checklist

Can you find the cash elsewhere?If you're struggling for extra cash, there's a heap of options to try before plumping for a payday loan. In fact, you may not need to borrow at all.

Do you need it? Try Martin's Money Mantras

Flog your stuff for cash

Check this isn't just a budgeting problem

What could you give up to find the cash?

Earn under £72,000? Check if you're entitled to any benefits

Reclaim, reclaim, reclaim – you may be owed cash!

Check for grants and support

FREE one-on-one money or debt help

Borrowing alternatives to payday loans

payday loans might not be the only optionDon't automatically assume you're frozen out by ‘normal' banks, so payday loans are your only option. The methods below may be able to give you what you need instead of a payday loan. We've listed them in rough order of which to try first - though scan all of them first to see what's suitable.

The aim is to replicate as closely as possible the speedy result you get from a payday lender, while costing less.

It's worth noting we wouldn't normally suggest a few of these techniques. But in comparison to payday loans, they're not so bad.

Use any existing credit card, provided you can clear it

If you spend on a credit card and CLEAR THE WHOLE CARD IN FULL next month, it's interest-free (except for the Lloyds Advance card) so there's nowt cheaper. So if you have this option, it's both the cheapest and easiest – as you needn't apply for anything.

Two important warnings though…

  1. If you can't clear the card in full, you'll pay interest even if you clear the amount you were planning to borrow.

  2. This only applies to spending, not ATM cash withdrawals - you pay a fee and interest on those, so spending on a card is always cheaper than getting a cash advance.

Even in these circumstances, provided you repay the debt in the same time as a payday loan – it's likely to be far cheaper – but there are other options below to try first.

What if you can't clear it in full?

If you don't have a card you can clear, and can't get any other form of credit that's cheaper, the next question is: do you have any credit card at all you can use? Almost every credit card, used right, is far cheaper than a payday loan.

Of course, you'll need room on your credit limit. If you don't have any, speak to the card provider and see if it can increase it. If you try to spend over your credit limit you'll either be declined or will be charged a £12 fee, which can be almost as costly as some payday loans.

How to make best use of your card:

  • If your loan is to buy something. Simply get the card, then use it to purchase whatever it is the loan was for, then make sure you repay this amount off the card in the same time as you were due to get the payday loan (eg, the next month).

  • If you need the loan for cash. Don't withdraw cash on your credit card, as you'll pay interest even if you pay it off in full. Switch to using the credit card for your normal spending for the rest of the month (don't overspend and carefully budget). The equivalent amount of unspent income will be in your bank account, which can then be used as cash to make the purchase/pay the bill.

    Again make sure you then repay your card the same time as you were due to repay the payday loan - this is usually less than a month.

Get cash: instantly

Loans and grants from local councils / job centre

Gov UKSadly these Government-backed funds are not as commonly available as they used to be. A disgrace, as it has allowed payday lenders to take control of the market place at high rates. Yet some people may still be able to get them, though they don't tend to be that speedy.

  • Budgeting loans and advances. If you're on income-based benefits (such as income support, pension credit, employment & support allowance or jobseeker's allowance), you may be able to get an interest-free loan of up to £1,500 for essential items for your home or other necessary things that you need a lump sum for such as rent, furniture, clothing or debt repayments. Repayments depend on what you can afford, though loans last for two years at most.

    How to apply: Apply at the Jobcentre or download the form on Gov.uk.

    How easy are they to get: Demand is extremely high and there isn't a bottomless pit of money, so if the Jobcentre decides your circumstances aren't urgent or you're not struggling, you may not get anything. But if you think you qualify and really need the cash, it's definitely worth a shot.

  • Emergency? Try local council support schemes: Each local authority is now responsible for providing help to residents struggling with an emergency.

    Although each council's criteria are different, you'll need to be on income-based benefits to qualify, and priority's usually given to those on the lowest incomes.

    This could include you or your family's health being at risk (if your boiler's packed up mid-winter), not being able to afford to buy food, needing help to stay in your own home and coming out of care, hospital or prison.

    Sadly, this is a postcode lottery. Each council can choose whether to offer financial help or not or who is eligible. For example, some may give furniture, clothing, white goods or food grants while others may give cash. Contact your local council to find out its procedure.

For more things to try, look at our Low Income Grants guide.

Get cash: 1 day - 2 weeks

Get a 0% credit card – even with a poor credit score

Even if you don't have a card you can clear, If you need to borrow money, doing it interest-free is the best way. There are plenty of 0% credit cards available, and the right one for you depends on what you need the money for. Applications take between one and three weeks. Here's what you need to know.

  • If you've a good credit score, go for the longest 0%. Many cards offer over a year's 0%. This is worth considering if your credit score is decent as it means you have longer to repay, and can have the card ready in case you need to use the 0% again. For full help, see Top 0% Credit Cards - our Eligibility Checker shows which ones you're likely to get.

  • Poor credit score? There are still options. A few deals are usually available for those with a poorer credit history. Yet these offer far shorter 0% deals, then again they still last far longer than a payday loan.

    The rub is that these cards punish you harshly for overstaying your welcome. Once the 0% periods end for spending or debt shifted from other cards, the interest you'll be charged typically jumps to over 30%. So it's doubly important you try to repay these before that happens (though that still is likely to be cheaper than payday loans).

    Currently the main card offering this is Barclaycard Initial, which gives 0% for 3 months, followed by 34.9% representative APR. For a full list, see Credit Cards For Bad Credit.

  • If you need the loan to buy something. Simply get the card, then use it to purchase whatever it is the payday loan was for.

  • If you need the loan for cash. Don't withdraw cash, that won't be at the 0% and there'll be a fee. Instead, get one of these cards then use it for your normal spending (don't overspend and carefully budget). The equivalent amount of unspent income will build up in your bank account which can then be used as cash.

  • Warning – follow the golden rules for 0% spending cards.
    a) Always pay at least the monthly minimum else you'll lose the 0% deal.
    b) Clear the card before the 0% ends, or you'll pay hefty interest.
    c) Don't balance transfer - that's not usually at the cheap rate. If you are trying to clear expensive debts, you need different cards. See Best Balance Transfers.

Get cash: 2-4 weeks

Check out your local credit union or CDFI

Credit unions and Community Development Finance Institutions are independently-run local co-operative organisations which aim to assist people who may not have access to financial products and services elsewhere.

For many, they're a welcome and cheaper alternative to payday loans, often doing loans that are similar.

A good example of this is from the London Mutual Credit Union, serving four central London boroughs. Its CUOK! loans are paid back over up to three months, allowing payments to be spread out.

If you pay back the loan in one month, interest costs on a £400 loan are £12 with the credit union, compared with an average of £120 for a traditional payday loan. See the best buys for this and other credit unions now offering payday loans (some may require you to save with them first, so check).

Better still, the maximum a credit union can legally charge is 42.6% APR. For more info, see our Credit Union guide or find if you've a local credit union. You can also see if there's any Community Development Finance Institutions near you - check out Finding Finance.

Get cash: 1-3 days

Freeze an emergency credit card for when needed

If you've often found yourself on the brink of payday loans, and need to find a cheaper way, there's one way to arm yourself with a permanently cheaper measure.

Credit cards, while not great, are far cheaper than payday loans, provided you repay both within the same amount of time. For example, a month’s £200 payday loan costs £60, but on a credit card repaid in full, it's free. Even when it's not free, a credit card costs around £3-£10 a month (depending on your APR).

So apply for a credit card for use in emergencies (the roof falling in, not new shoes). If you’ve a decent credit history, go for a 0% spending card. If not, then even poor-credit credit cards at what we’d normally say are horrid 30-50% APRs are much cheaper than payday loans.

To ensure this is kept for disciplined emergency use only, not willy-nilly spending, once you get the card, put it in a waterproof bag, then put that bag in a bag full of water & put it in the freezer. If you need it, you’ll need to smash the ice – which should give you serious pause for thought as you hack away to get the card.

Get cash: 2 minutes (time taken to hack away at the ice)

Can you borrow from family?

Although borrowing from family (or a close friend) can be tricky, if you're in a bad way it may be worth asking for help, even if it's just going around for dinner to save on costs. Plus, often talking about your money problems can be a huge relief (see the Debt-Free Wannabe board on the MSE forums).

To make you and them feel better, do it formally. Write down the amount and when you'll repay them – along the same terms.

If it is a close family member (such as a parent) and they don't have the cash, but they do have a better credit score than you, then as long as they're willing, it would be better for them to try some of the alternatives above to get the cash to lend to you. But they must be aware the debt is then legally theirs, not yours.

Get cash: 1 day

Can you extend your overdraft? (but avoid charges, they're worse than payday loans)

Usually we suggest people avoid using their overdraft facility if they'll will incur interest charges. However if you stay within your ARRANGED overdraft limit (even if you extend your overdraft to do so) this will be cheaper than using a payday loan.

Our Best Bank Accounts guide tells you the best accounts if you're overdrawn - and some even have 0% overdrafts for limited periods, which'll allow you to sort out your finances.

Whatever account you have, and whatever your agreed overdraft limit, NEVER, EVER go over it as the charges can be up to a massive £6/day or £15 per item, which can actually work out to be more expensive than a payday loan. (See Martin's blog: Overdraft charge APRs dwarf payday loans).

Can you extend your overdraft?If you're already at your limit with overdrafts (and can't extend), and have maxed out your credit card, then consider getting help with your debts. Don't think a payday loan is the answer - it may make your situation worse rather than better.

See the full Debt Help guide for more suggestions if you have problems with debt, or see the Stop Spending guide for help with managing your money.

Get cash: same/next day

The 'least-worst' payday loans

If you've jumped straight here - please scroll up and read the alternatives first.
Payday loans are dangerous and only ever a last resort.

However in the very limited circumstance that you've tried everything else, need cash quickly and KNOW you can repay the loan in full when you need it, this short-term lending can fill a hole. If you're not sure you can repay in full, charges will roll up and this could be a financial nightmare costing you many times more than you borrowed – so don't do it.

Still want a payday loan? Choosing a lender checklist

Debt WorryIf you still feel a payday loan is right for you, this information will help you compare payday loans.

Find out the real price to you

Watch out for payday loan brokers

How do I ensure the company is legit?

What do I need to be able to apply?

Watch out for marketing opt-ins

'Payday lenders' to try

Elsewhere on MoneySavingExpert.com we list best buys - and there are a few here. They're all credit unions or community development finance institutions, but it's worth seeing if you can get a loan from them before you go to a payday lender.

Check out Finding Finance for community based lenders close to you to see if you can borrow from them first.

The credit unions are fairly new to short-term lending. There's three we know of that do it, and they're all quite geographically limited. One caters for people who live or work in four central London boroughs (Southwark, Lambeth, Camden and City of Westminster), one's for people in South Birmingham, Worcestershire & Sandwell, and the other's a scheme in Liverpool.

Best buy 'payday lenders'

Credit unions are limited by law in the APR they can charge - there's a maximum of 42.6%, meaning your 'payday' loan will cost much less. You'll usually need to join the union, and often contribute to a savings account.

Best buy payday lenders
Does a credit check and reports repayments to credit reference agencies
Rep APR Total repayment for £100 borrowed
for one month
Total repayment for £200 borrowed
for two weeks
Total repayment for £400 borrowed
for one month
Allows rollovers? Allows early
repayment?
CUOK Loans (central London only) 42.6% £103 (1) £205 (1) £412 (1) Yes. (2) Yes - no penalties.
Partners Credit Union (Liverpool City Council area only) 26.8% £102 (1) £204 (1) £408 (1) Yes. (2) Yes - no penalties.
6 Towns (Worcestershire, Sandwell & South B'ham) 26.8% £102 (1) £204 (1) £408 (1) Yes. (3) No.
(1) If you want the cash the same day, you need to pay a same day payment facility fee of £11 (CUOK)/£15 (Partners & 6Towns).
(2) You can choose at the outset to pay the loan back over one to three months. The interest cost approximately doubles if you take a loan for three months rather than one.
(3) 6Towns will extend your loan for up to three months. You'll pay a £15 fee each time you extend.

We're expecting more credit unions to adopt this model in the coming months & years - and we'll add details of those who do into this table.

Least-worst payday lenders

For the rest, in all good conscience, we don't feel it's appropriate to call most payday lenders 'best buys' here - we don't like any of them - although costs have come down as we approach the enforced implementation of a total cost cap for high-cost credit on 2 January 2015. So, we've picked some of the ‘least worst' payday lenders...

We've deliberately not linked to these lenders – to give you time to pause for thought.
(But we've included the website addresses, as searches tend to find similar paid-for links)

Least worst payday lenders
All do credit checks and report repayments to credit reference agencies
Rep APR Total repayment for £100 borrowed
for one month
Total repayment for £200 borrowed
for two weeks
Total repayment for £400 borrowed
for one month
Allows rollovers? Cost? Allows early
repayment?
What's good? Higher APR is worse, but focus on cost more than this The sum below is the total repaid including the original borrowing. Lower is better. Rollovers are dangerous. Avoid. The aim is they reduce charges if you repay early.
paydayexpress.co.uk 1,297% £124.80 £224 £499.20 Yes. (1) Yes - but doesn't reduce cost.
paydayuk.co.uk 1,297% £124.80 £224 £499.20 Yes. (1) Yes - but doesn't reduce cost.
quickquid.co.uk 1,999% £125 £250 £500 Yes. (1) Yes - but doesn't reduce cost.
sunny.co.uk 1,971% £113.53 n/a £454.13 No. (2) Yes, and as it charges by day, you pay less.
wonga.com 1,509% £122.40 £222.40 £489.60 Yes. (1) Yes, and as it charges by day, you pay less.
(1) The cost cap will limit how often you can roll your loan over. (2) Sunny doesn't allow rollovers, but you can choose to change your loan term.

If you want to repay early there may be a trick to get the cost reduced

What if I don’t pay on time (lender-by-lender info)?

How we picked these…

Normally we work on price, but with payday lending currently so weakly regulated what we've tried to do is focus on lenders which at least on the surface have better protocols in place. To be in this list lenders must:

  • Be registered with the FCA

  • Have signed up to the Good Practice Charter. Don't get too excited, it's just a voluntary industry code, but it's better than nothing.

    More about the Good Practice Charter
  • It does a credit check. This means that it is at least checking some basic affordability criteria before it lends.

Have you had a payday loan experience you'd like to share?

Join the payday loans discussion in our forum to tell us your thoughts or complete the Citizens Advice survey.

If things go wrong...

If things go wrong, it's important to contact your lender as soon as possible and let it know you’re having difficulty repaying. Don’t try to front it out. You should also consider contacting a non-profit debt help agency.

All the lenders above have committed to offering reasonable repayment plans if there are problems. If you haven't paid anything after 60 days, then the lenders above will freeze interest and charges. However, they will pursue you for payment, and will report your non-payment to credit reference agencies, which will damage your future borrowing chances.

If you feel you've been mistreated...

Don’t just take it. While the firms are weakly regulated at the moment, you still have a right to take them to the free Financial Ombudsman Service which can adjudicate.

If you're not sure whether you have grounds for complaint take a look at the Citizens Advice Payday loans: know your rights video and information pages.

If you decide to complain, first contact the firm itself. If it doesn’t give you a satisfactory answer, then don’t give up, go to the Ombudsman. It's simple to do - you can call it on 0300 1239 123. Alternatively you can ask it a question in the MSE forum or head to its specialised Payday Loan Help page - where you can chat online too.

For step-by-step help, see our guide on Financial Ombudsman complaints.

Payday loans - MoneySavingExpert's view

It'll be no surprise by now that we're not big fans of payday loans. This industry has seen the UK as a crock of gold. Huge money has flooded into the UK due to our weak regulations while other countries, notably the US, have cracked down and regulated their industries.

Our Editor-in-Chief Martin Lewis has campaigned on our behalf for much stronger regulation – giving evidence at the Business, Innovation & Skills select committee of MPs, addressing the Government's Payday Loan summit, as well as media appearances and working alongside the likes of payday loan-campaigning MP Stella Creasy.

Here's Martin's quick list of some of the changes we'd like to see…

  • Ban advertisements for these loans on children's television. This is an attempt to target hard-pressed families – even though lenders claim they are not their target market.

  • Restrict the nature of the adverts. Payday loan advertising is pervasive. They make it look like this is a fun, little transaction rather than a hardcore form of debt. The ads should have much more prescriptive content rules about how they're presented.

  • A lower total cost cap should be introduced. Good news. The regulator has announced it will be bringing in a total cost cap to payday loans during 2015.

    For your loan, they've said that for every £100 borrowed, the lender shouldn't be charging more than £24 in interest per month.

    And, they've announced the total cost cap of double what you borrowed. So, for example, if you borrow £100, you'll never have to repay more than £200 in interest, fees & capital repayment, including the original cash lent. However, MSE has called for a lower total cost cap, so you'd pay at most £150 for every £100 borrowed.

  • There should be a delay between applying for a loan and receiving the cash. These loans sell themselves on convenience, but they are too easy. In some cases, the money can appear in bank accounts within 15 minutes.

    While there's a 14-day cooling-off period, as for any credit agreement, it's relatively meaningless as you have to repay the capital plus interest/fees for that period (so at these rates it'd still be expensive).

    Therefore a one-day delay before receipt of the cash, at least giving people a chance to reconsider before there are any charges (especially those who apply when intoxicated), would be useful.

  • Mandatory affordability and credit checks. Many payday loan providers already do credit checks. But some advertise their loans predicated on the fact that they do not credit check you. It should be mandatory for all payday loan lenders.

    Affordability checks should also be mandatory - Wonga has already been rapped by the regulator for not properly assessing some customers' ability to make repayments.

Further information on MSE's view and campaigning work on payday loans…