Payday loan best buys?

Check cheaper alternatives first

Need some quick and easy cash? A payday loan feels easy, but even now the amount of interest you pay has been capped, these loans are still an expensive nightmare. Take one out and you risk scarring your finances, and the possibility of paying back double what you borrowed.

We don't like payday loans. Most people who get them shouldn't. Yet if you're considering one, 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.

STOP PRESS - Payday lender Wonga has gone into administration, marking the end of the road for the UK's largest payday loan firm. See our news story for full info, including what to do if you currently have a Wonga loan.

In this guide

What is a payday loan?

Payday loans are designed to be short term loans of £100 to £1,000 that – as their name suggests – are designed to tide you over to the next payday.

They’re usually used to meet emergency costs, eg boiler repair, that you otherwise couldn’t meet from your monthly salary or savings.

Generally, you will need to agree that the company can take its payment from your debit card on the day your next salary payment falls due, though some lenders will allow you to pay a longer period - often up to six months.

10 payday loans need-to-knows

  1. They're high cost, short term loans with more tricks than a Crufts show

    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.

    Quick question

    • The loans are typically only supposed to last for days, or maximum of a month, for amounts of up to £1,000 or so. The stated cost can be fairly low, especially when compared to unauthorised overdraft charges. But many borrowers get stung by tricks used by payday loan firms, as well as their lending decisions.

      While we don't like these loans, for a small sliver of the population (not the millions who get them), they are lending of last resort which, used right, can solve a one-off hole in people's finances.

      But please read each and every warning in here, explore every alternative, and consider your options very carefully before deciding a payday loan is for you.

  2. 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 £25, so you need to repay £125. 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 - £5 LESS than payday lenders charge for just one month.

  3. 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.

    Quick question

    • Well, it's a legal requirement that if you're offering loans to people, then you have to have your APR marked in large letters on all adverts, and on your website.

      But, many have pointed out the pointlessness of this with a payday loan. APR stands for 'annual percentage rate'. Put simply, it's the rate you pay on what you've borrowed over a year, including all interest and charges.

      But, here's where it falls down. Payday loans are usually taken out for a matter of weeks, rather than for years. So, the amount you will have to pay back is really more relevant than the APR for these loans. See Martin's blog on the APR of repaying the price of a pint on £20 over a year.

      But, if you're thinking of getting a payday loan, the most important thing is...

      The real danger comes if you can't pay back in time – then these horrific APRs start to become close to reality as charges and fees add up.

  4. 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.

  5. 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.

  6. Beware borrowing over longer periods

    Many payday lenders now give you the option to pay your loan back over three months rather than one. This can help with budgeting, in that you don't have to pay the loan back in one great whack once your next paycheck's arrived.

    But, remember, the longer you borrow for, the more interest you'll have to pay - though there is a limit. The price caps on payday loans mean you won't ever pay back more than double the amount you borrowed.

    But, don't just rely on this cap. If you're in a situation where you need a payday loan, always, always have a plan for how you'll pay back the money so the costs don't spiral towards that cap. See How to Budget for help to manage your finances.

  7. 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.

  8. 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.

    Quick questions

    • A few mortgage lenders, including GE Home Lending and Kensington Mortgages, have publicly said applicants who have used payday loans won't be accepted for a mortgage with them - even if they were fully repaid on time.

      Yet even those who haven’t spoken up are likely to behave in a similar way. One of the UK’s top technical experts on mortgages, Ray Boulger from broker John Charcol, says:

      Most lenders will run a mile if an applicant has had even one payday loan in the last year.

      This is because the presence of a payday loan on the credit record of a mortgage applicant implies there's some underlying problem with their budgeting and money management. That throws serious doubt on their ability to consistently meet a monthly mortgage payment.

    • Some payday loan firms claim getting it has a positive effect.

      Of course, if you get a payday loan, paying it in full and on time is important. It'll certainly give you a relatively better score than not doing so. Similarly, missing a payment or late payments will harm your credit score.

      Yet payday lenders' claims that getting one will help your credit score are likely to be overblown. It can boost indicative scores from the credit rating agencies – but this isn't the same as making lenders more likely to give you conventional credit cards or loans.

      Each lender scores you differently, based on its own wishlist of what makes a profitable customer. Some will see a marginal improvement from payday loans – but equally, others may follow the path of mortgage lenders and see it as a big no-no.

      If you need to rebuild a bad credit history there are other, better ways to do that, with specific Credit Cards for Bad Credit.

    • Some, especially smaller, payday lenders don't share your payment data with credit reference agencies. These are generally the ones that advertise "payday loans with no credit checks".

      This can seem like a good thing, as it won't "ruin" your credit rating by putting the payday loan on your file (though a future lender could ask you).

      But it also means the payday lender's not lending responsibly as it's not checking you can afford to repay. It also means other lenders won't be able to see the loan, so as a consequence, their lending may not be responsible either.

      The 'responsible' payday lenders - the ones which credit check each applicant – say they turn down between 60% and 90% of first-time applicants because their credit records show they're already too indebted to have a good chance of paying their loans back.

      Think carefully if you're going to a payday lender because it advertises 'no credit checks'. Can you really afford to repay it?

  9. 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 your card. This gives the lender the right to take a payment whenever it wishes (though payday lenders are now limited to two attempts to collect payment). It can be dangerous, especially if you have other, more important bills to pay.

    Quick question

    • You have a right to cancel CPAs, simply by asking the bank which runs your account (read the full Recurring Payments guide). We're not advocating reneging on your payday debts, but the lack of control these types of payments give you is scary - it's far better to call them and pay up as and when you owe the money.

      This also affects parents or friends who may make a payment for you

      The fact continuous payment authorities are used isn't just a problem for the borrower themselves. Often parents or friends agree to pay back the loan (or just one repayment) on the borrower's behalf. We've had reports of payday lenders keeping details of these, and then using them both for that loan and any future loans - even without an agreement - and taking from the other account.

      Use your rights to cancel recurring payments if that happens.

  10. 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 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.

    Quick question

    • If you know of loan sharks near you, report them on 0300 555 2222 (you can also text LOAN SHARK and lender's details to 60003, or visit StopLoanSharks (England only). If you're elsewhere in the UK, contact details to report loan sharks are on the Government's Report a Loan Shark page.

      When borrowing, always check whether the lender has a credit licence. But don't rely on that alone. Most consumer credit licences only cost £1,000 to get, so they don't necessarily guarantee a legitimate business with wholesome practices. Google the company as well, and do whatever else it takes to find everything you can about it.

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.

The 'can I find the cash elsewhere?' checklist

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.

First of all, take a look at the following...

  • If you're getting a payday loan because you need to buy something, you need to consider if that purchase is appropriate. Martin has two Money Mantras: one for if you're skint, one for those not skint. If you're getting a payday loan we will assume you're skint, or you shouldn't even be considering getting one.

    In which case, before you buy anything ask yourself these three questions…

    1. Do I need it?

    2. Can I afford it?

    3. Have I checked whether I can buy it cheaper elsewhere?

    If the answer to any of these is 'no', then don't buy it.

  • Shops and business do stock control, considering their assets as cash, ensuring they're utilised. We need to adopt a similar system. If you've things in your house you've not used or worn in a year, ask if it's worth keeping. If not, flog it and release the assets.

    Even if there are things you use occasionally, if you're considering getting a payday loan – are you sure there aren't things you can sell? Old gadgets and CDs could raise the cash you need without affecting you too much.

    If it's old mobiles or gadgets, use Compare Mobile Buying Sites to find top prices. For other things, see our eBay Selling and Flog What You've Got tips.

  • Payday loans may seem to offer a quick solution, but they only postpone the problem. If you've borrowed £200 this month, and £250 is taken out of your salary on your next payday, how are you going to make sure you're not short again at the end of next month?

    Spending more money than you earn is a classic reason people get payday loans. Doing a proper budget will give you a clear picture of where you are overspending.

    Use our full online Budget Planner – get all your bank account and credit card statements, plus bills from the last six months to a year. Ensure you include everything and are totally honest.

    Plus look at everything you spend money on, whether car insuranceexisting credit card debtsgas and electricity, or water bills and see if you're paying more than you need. Full help on this in our Money Makeover guide.

  • Whether it's coffee, cigarettes, or walking instead of getting the bus – small savings can quickly add up. Try the Demotivator to see how much you can save.

  • Even if you don't think you're due any benefits, or if you're already claiming, it's worth checking to see if you could be eligible to claim payments.

    The main thing to remember is benefits are NOT just for the unemployed. Many families are entitled to Government cash but aren't aware they're eligible. In some cases, even those earning up to £73,000 may get help. See the Benefits Check-Up guide to see if you're eligible.

  • Over the last few years, a number of ways that banks, insurers and arms of government have unfairly taken cash off us have emerged. This money can be reclaimed, and can be in the £1,000s, or even £10,000s, but you need to take action to get it back. Check the following:

  • Some utility companies offer help if you have large arrears on your gas, electricity or water bills. You'll need to be a customer, so if yours isn't listed, ask if it has a similar scheme.

  • If you're really struggling, know a payday loan would be damaging for you but can't think of any other options, then it's time to get some one-on-one help from a non-profit agency.

    If you're existing debt problems, read though our Debt Crisis Help guide for ideas or speak to Citizens AdviceNational DebtlineStepChange Debt Charity or if you're struggling to deal with it emotionally too, CAP UK.

    They're not there to judge you, just to help – and we get incredible feedback on how they turn many people's finances around.

    If you're not in debt but need a bit of general money guidance to help you out of a hole, try calling the Government-funded Money Advice Service on 0300 500 5000.

Alternatives to payday loans

Don'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 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…

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

  • 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

Sadly 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 £812 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 online at Gov.uk. Or, you can download the form from there, or pick one up from your nearest Jobcentre Plus.

    How easy are they to get: Demand is extremely high and there isn't a bottomless pit of money, so if it's decided 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. You'll get a decision within 20 working days if you apply online - other ways take longer.

  • 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, some may give vouchers, 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 Calculator 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 25%. 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 Aqua, which gives 0% for six 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.

See the best buys for credit unions now offering payday loans (some may require you to save with them first, so check). For more info, see our Credit Union guide.

If you need to borrow more than a traditional payday loan would allow, several credit unions have got together to offer an online portal for their loans. CU Loans* will take some details on you and the loan you want and will then find if there's a credit union you're eligible for, and your loan will be processed through that credit union. You can borrow between £1,500 and £15,000 for between one and five years.

The representative APR is 8.9%, but only 51% of accepted applicants need to be offered that rate. The highest APR that CU Loans will charge is 25.22%.

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 just under £50, 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 in interest (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 £10/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).

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

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

  • Charges vary from company to company. On average, it's around £24 per month per £100 borrowed. Yet there's no one cheapest here, as it depends on the exact amount and length of borrowing.

    So always ensure you know:

    A. What you repay if you repay on time – compare based on that.
    B. Just in case - what would happen if you couldn't repay? If this is a realistic possibility (obviously we'd prefer you didn't get a loan at all in these circumstances), factor this into your decision very carefully.

  • Payday loan brokers will look like payday lenders, but they won't be able to lend to you. Instead, they'll charge you up to £70 for referring your application to a payday lender.

    If you are going for a payday loan (and make sure you've checked none of the alternatives above are suitable first), don't fall for this scam. The credit market regulator plans to clamp down on this, but it's not here yet, so do make sure you're actually dealing with a lender.

  • Adverts for payday loans are everywhere - especially online, so it's tricky to know where to go. Before applying, check the company's registered with the FCA - see if it's licensed under the Consumer Credit Act at the FCA Consumer Credit Register. It's important to do this as some payday lenders have been operating illegally.

  • This varies from lender to lender, but you'll need to be over 18 years old, have a full bank account with debit card, a regular income and with most payday lenders you will have to pass a credit check (some say they reject as many as two-thirds of first time applicants). You'll also need some proof of your identity and your income.

  • Some lenders have marketing opt-outs/ins on their application forms. If you say you're happy to hear from them and 'selected' third parties, then it means they're able to sell your data to whoever they like. Always make sure you say no to marketing.

Alternatives to payday lenders

Elsewhere on MoneySavingExpert.com we list best buys - and there are some here. They're generally credit unions or community development finance institutions, but there's a few new companies looking to make short term lending more affordable than 'normal' payday lenders.

  • Retail Cure credit union offers loans to people working in retail (or their families). This actually goes a lot wider than you'd think - eg it includes transport drivers and cleaners - so check if you'd qualify. When you join, you'll need to open a savings account with the credit union, and agree to save regularly (either £5 or 10% of your loan repayment figure each month, whichever is higher). Retail Cure's APR is a low-ish 26.8%, meaning interest on a one-month, £400 loan is just £8.

    Loans from Retail Cure are a minimum £500 for a minimum term of six months, though you'll be able to repay early.

  • 6 Towns Credit Union offers loans to people living or working in Sandwell, Worcestershire or South Birmingham. When you join, you'll need to open a current account with the credit union, and have your salary paid in there to be able to apply for a loan (this can be done at the same time). 6 Towns' APR is a low-ish 26.8%, meaning interest on a one-month, £400 loan is just £8.

    Payday loans from 6 Towns are designed to be repaid in full on your next payday, though you can pay a £15 fee each month to extend the loan. There's also a £15 fee if you want the cash the same day you apply.

  • Wessex Community Bank offers loans to people who live or work in Hampshire. You can apply online for a loan; just choose the amount you want - it lends from £500 up to £7,500. Loans up to £3,000 have an APR of 29.3% and you can borrow for between one month and five years (larger loans can be as low as 5.1% APR).

    Borrowing £500 for three months would cost £15-£20 in interest depending on whether you choose to repay weekly or monthly. Plus, if you can repay early, there's no penalty to do so. As a nice touch, some of your repayment goes to 'saving' which comes back to you as cashback once your loan's paid back.

  • Partners Credit Union offers loans to people living or working in Merseyside, or UK-resident members of Spirit of Shankly. When you join, you'll need to start saving with the union, and will need to have been a member for eight weeks to six months to apply for a loan, depending which you apply for. It offers a range of different loans with APRs between 9.8% and 42.6%; £400 borrowed for one month will cost £12 in interest.

    You can choose the amount and term of your loan, as Partners offers a range of different borrowing options, and you can repay early without penalty. If you need cash the same day, it'll charge £15 to transfer.

  • CUOK Loans is the payday loan section of the London Mutual Credit Union, which is for people who live or work in the boroughs of Camden, Lambeth, Southwark and Westminster. As it's a credit union, its APR on loans is limited to 42.6%, meaning that £400 borrowed for one month will cost just £12 in interest.

    You can choose at the outset to pay loans over one to three months, but you can repay early without penalty. If you need cash the same day you apply, there's an £11 fee.

  • Leeds City Credit Union offers loans of between £250 and £1,000 at a 42.6% APR to be paid back after between one and 12 months. Borrow £400 for a month, and you'll repay just £412.

    To get a loan, you'll need to live or work in Leeds, Wakefield, Harrogate or Craven, be a resident of certain housing associations, or work for one of these employers. Some trade union members in Yorkshire and the North East are also eligible.

  • Drafty's a loans service offering payday-style loans at a low-ish (for this type of lending) 89.7% rep APR. We say payday style, as you actually apply for a line of credit rather than a specific loan - you're only charged when you're using it.

    You can borrow from £50 to £3,000 - but as it's a line of credit, there's no minimum or maximum repayment period. You just need to make a minimum repayment each month. Using Drafty will need financial discipline to pay off the credit and not use it again, so if you don't have that, and you only want the one-off loan, set fixed repayments each month, then shut down your account once the loan's paid off.

    Borrowing £400 with Drafty for one month will cost you around £24 in interest. Cash should arrive the same day you apply.

  • Street UK describes itself as a "community interest company", saying its charges only cover the cost of providing credit to you. You can only apply if you live within 15 miles of a Street UK branch - they are in Birmingham, Walsall, West Bromwich and Wolverhampton.

    You can borrow between £200 and £1,000 and pay it back over up to 12 months (though you can pay back early). Cash will be paid to you on the same day, or the next day, depending on what time you apply. Its APR is 120%, meaning to borrow £400, it will cost around £48 over one month. You can opt to pay it back weekly, fortnightly, four-weekly or monthly, so it fits in with how you're paid.

Check out Find Your Credit Union or Finding Finance for community based lenders close to you to see if you can borrow from them first. 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. If you find one that offers payday-style loans, please let us know in the credit union payday-style loans forum.

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 the Government has forced payday lenders to cap their interest & fees. There are three elements to this cap, so make sure your lender's not breaking them:

  • Lenders can only charge 80p interest per £100 per day. So, if you borrowed £100 for 30 days, you shouldn't pay more than £24 in interest.

  • Lenders can't charge more than £15 as a fee if you pay late.

  • You'll never pay back more than double what you borrowed. So, if you borrow £100, you will never pay back more than £200 when all interest, late fees and charges are taken into account.

We've picked some of the 'least worst' payday lenders...they're ordered alphabetically, as we don't rate one over another, but here's the things you should be looking for in each column:

  • Rep APR: Higher APR is worse, but focus on cost more than this.

  • Total repayment: The sums in the table are the total repaid incl original borrowing.

  • Rollovers: Rollovers are dangerous. Avoid.

  • Allows early repayment: Look for lenders that reduce the cost if you repay early.

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
TABLE_CELL_STYLE Rep APR Total repayment for £150 borrowed for three months Total repayment for £400 borrowed for one month Allows early repayment?
lendingstream.co.uk 1,325% £260 (1) £496 (1) Yes - and will reduce cost.
quickquid.co.uk 1,299% £258 £496 Yes - and will reduce cost.
sunny.co.uk 1,291% £258 £496 Yes - and will reduce cost.
(1) LendingStream offers loans over a 6 month term, but you can repay early. So these costs are estimated.
  • First of all, again, please don't take out a payday loan if you think you might not be able to pay on time. Or at the very least, schedule the repayment so it's a bit later, when you KNOW you’ll have the cash. Many short term lenders now let you take cash over a few months - though, of course, the longer you have the loan, the more interest you pay.

    If something does go wrong, lenders' policies vary, yet all those above have signed the payday lenders' Good Practice Charter.

    This has some requirements, though it's open to debate how well policed it is. It means lenders shouldn't pressure you to roll over or increase your loan, and they should…

    • Remind you at least three days before your repayment is due, including contact details for you to get in touch if you're in financial difficulty.

    • Freeze interest and charges if you agree a reasonable repayment plan, or after 60 days of non-payment.

    • Tell you where to get debt help if needed (we strongly suggest you do this, the link takes you to our guide which includes non-profit debt help agencies).

    Always, always tell your lender as soon as you know you're not going to be able to repay. It does work. Be firm, make a fair offer and be willing to answer questions about your income and expenditure honestly. It worked for forumite p4nc4ke:

    Recently my total payday loan debt was at £2,655 and I had run out of options as my monthly pay just wasn't enough.

    I contacted the companies asking for a repayment plan. I worked out how much I could afford to spend on payday loans and then divided it between each company in proportion to how much I owed them.

    All agreed to freeze the interest and accepted the monthly amount I offered.

    So, I just want people to know that there IS a way out, even if things look extremely bad. Do not get depressed, you CAN get it sorted. And don't put it off and off like I had - I could have saved myself a lot of money

    p4nc4ke

    The story above's about financial hardship, while you may only need a few extra days to pay. Each company has a slightly different policy on late payments, although no payday lender's allowed to charge you more than £15 as a late payment fee. Here are the specifics:

    LendingStream – Get in touch if you’re likely to default, to discuss repayment. If not:

    • It'll charge a £15 default charge, and will continue to charge interest until you do repay.
    • It'll mark the non-payment on your credit report as a missed payment.

    QuickQuid – It can offer a change of date by up to three days, an extension, or a fixed repayment plan if contacted, if not:

    • There's a £12 late fee for missed payments.
    • It'll mark the non-payment on your credit report as a missed payment. It also reserves the right to charge you for any costs incurred in chasing you to pay the debt.

    Sunny – Get in touch if you can't pay, it'll discuss repayment options with you. If not:

    • It’ll contact you via SMS/email at different stages of you being overdue. It does not charge late payment fees.
    • Sunny will discuss with you whether extending the term of your loan could help you pay it off without you going into default or being put on a payment plan.
    • For cases where there's no other option, Sunny will put you on a repayment plan. It'll mark the non-payment on your credit report as a missed payment.

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.

  • This is a set of guidelines aimed at ensuring responsible lending. Bear in mind it was drawn up by the trade associations representing payday lenders, and membership of those is totally optional.

    If the payday lender has signed up to the Good Practice Charter, it means it's a member of a trade association - one of the Consumer Finance Association, the Consumer Credit Trade Association, Finance & Leasing Association and the British Cheque & Credit Association. You can complain to that association if the payday lender breaches its commitments under this code.

    The code also commits payday lenders to:

    • Not pressure you to enter or extend (roll over) any loan agreement.

    • Allow no more than three rollovers to any loan

    • Tell you how the loan works and the total cost of the loan (including an example for the price of each £100 borrowed).

    • Carry out an affordability assessment before each loan and rollover is granted.

    • Notify you at least three days before your repayment is due, including contact details of the loan company for you to use if you're in financial difficulty.

    • Freeze interest and charges if you agree a reasonable repayment plan or after 60 days of non-payment.

    • Tell you where to get debt help if you're in financial difficulty.

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.

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. And now it's the case that when their interest and late fees take your total debt to double the amount you borrowed, they have to stop charging.

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. You 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.

Help if you've already got a payday loan

If you've already got a payday loan, don't panic. There are some things you can try to get out of the cycle. Why do we call it a cycle? Well, if you needed to borrow £400 this month to see you through to payday, and you need to pay it back on payday, it'll likely mean you're £400 short next month too, probably requiring you to borrow again.

The methods below may help you ditch the payday loan, and - crucially - give you a longer time to repay. Have a scan through them all to see what's suitable. It's worth noting we wouldn't normally suggest paying off debt with other debt. But in comparison to payday loans, these debts give you time to repay....

Use any existing credit card to tide you over

If you've an existing credit card that has at least some of its limit left, this is a much better option than taking out a payday loan, even if you'll pay interest.

To pay off the payday loan, you need to use the credit card for your all normal spending for the rest of the month (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 to pay off the loan

Then pay off the card as quickly as possible - ideally the same month so you don't pay interest. If this isn't possible, then just pay it as fast as you can. A few months at 20% interest is much less than you'll pay on an equivalent payday loan.

Warning: only spend on the card, don't make ATM cash withdrawals - you pay a fee and interest on those, so spending on a card is always cheaper than getting a cash advance.

No credit limit left? If you're maxed out, 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.

Are you eligible for a government loan?

This may not be a solution for everyone, as most payday lenders won't lend to those on income-based benefits, and you need to be in receipt of these to qualify for a Government budgeting loan.

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 £812. Technically, these loans are 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.

So, you'll need to use the loan for these - ie living expenses. Meanwhile, use the other income you have that you're now not using for living expenses to pay off the payday loan. Repayments depend on what you can afford, though loans last for two years at most.

How to apply: Apply online at Gov.uk. Or, you can download the form from there, or pick one up from your nearest Jobcentre Plus.

How easy are they to get: Demand is extremely high and there isn't a bottomless pit of money, so if it's decided 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. You'll get a decision within 20 working days if you apply online - other ways take longer.

Can you get a 0% credit card? (even some with a poor credit score can)

These cards are the holy grail of paying off a payday loan cheaply. After all, if you need to borrow money, doing it interest-free is the best way. Here's what you need to know...

If you've a good credit score, get a 0% money transfer. This is where they pay cash into your bank account for you, for a small fee. You now have money in your account (use it to pay off the payday loan) and you've a debt on the card. Use the period at 0% to clear the debt from the card. For full help, see 0% Money Transfers.

Poor credit score? There are still options. You can still get a 0% card to help you pay off your payday loan, it's just going to be a bit more complex, as these are 0% on spending rather than on moeny transfers. But, importantly, they still give you a few months with no interest to allow you a bit of respite.

If you can get one of these cards, use it to pay for everything you buy where cards are accepted - butdon't overspend, and carefully budget. The equivalent amount of unspent income will build up in your bank account, which you should use to pay off the payday loan.

Only see the 0% period as a respite, though - on these cards, once the 0% period ends, the interest you'll be charged typically jumps to around 35%.

Currently the main card offering this is Aqua, which gives 0% for four months. For a full list, see Credit Cards For Bad Credit.

Can your local credit union or CDFI lend you the same amount?

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.

Credit union loan rates are capped, and the maximum you can be charged on a loan is 42.6% APR (equivalent to 3% per month). Most loans are cheaper than this, and the highest rate is generally only used for very short term loans. If you can find a local credit union doing payday-style loans, borrow cash from them to pay off your 1,000%+ APR payday loan, then you'll have between one and six months to pay the credit union back.

See the best buys for credit unions offering payday-style loans.

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 buying food. Plus, often talking about your money problems can be a huge relief (see the Debt-Free Wannabe board on the MSE forums).

If someone will help you out, do it formally. Write down the amount and when you'll repay them. Hopefully they won't charge interest (or if they do, see if they'll accept a pint as thanks, or a token sum at the end of the loan).

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, they could 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.

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 incur interest. But if you stay within your ARRANGED limit (even if you extend your overdraft to do so) this is cheaper than a payday loan. Use the extra amount of the overdraft borrowing to pay off the payday loan.

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

Regardless of your account or overdraft limit, NEVER, EVER go over it as the charges can be up to a massive £10/day or £15 each time you got further in, which can actually work out to be more expensive than a payday loan.

If you're already at your limit with overdrafts (and can't extend), have maxed out your credit card, and have a payday loan that you're struggling to pay off, then consider getting help with your debts. See the full Debt Help guide.

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. However, with January 2015's total cost cap, we may see a decent amount of change in the industry.

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 brought in in a total cost cap for payday loans. So, for every £100 borrowed, the lender shouldn't be charging more than 80p in interest per day - if they are, do report them to the FCA, as they're breaking the law.

And, the total cost cap means you'll never pay back more than 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.