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Short-term and payday loans
How best to borrow small amounts for a few months
Updated 10 January 2022
Payday loans are a financial nightmare, and you should avoid them entirely if possible. This guide explains alternative (and much cheaper) ways to borrow, and – if a payday loan is the only answer – what to watch out for.
If you're currently in financial hardship, see our Debt Problems guide for what to do and where to get help.
What is a short-term or payday loan?
Short-term loans, also known as payday loans, are designed to tide you over for a few months (or sooner if you can pay back the balance plus interest) and are for smaller amounts, usually between £100 and £1,000.
They’re often 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 over a longer period – often up to six months. For some they offer lending of last resort which, used right, can solve unexpected holes in people's finances, though read on for the full list of warnings.
Many of these loans were handed out irresponsibly and mis-sold to those who couldn't afford to repay. If you've ever had a payday loan and feel the lender didn't check your ability to repay properly, you may be able to claim £100s or even £1,000s in compensation – see our FREE Reclaim Payday Loans guide and tool for full help.
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...
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![guys with pennies]()
Payday loans may seem to offer a quick solution, but they only postpone the problem. If you've borrowed £200 this month, and £250 (repaying the loan plus interest) 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 insurance, existing credit card debts, gas and electricity, or water bills and see if you're paying more than you need. Full help on this in our Money Makeover guide.
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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. If you’ve had a payday loan in the past it may have been mis-sold, see our Reclaim Payday Loans for Free for more info.
Other top reclaims: Council Tax Rebanding | Bank Charges Reclaim | Uniform Tax Rebates
Or see the full list in the Reclaim section.![illustration]()
If you still absolutely NEED to borrow to plug a short-term hole in your finances, don't automatically assume you're frozen out by ‘normal' banks, and that 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 before making a decision 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.
Help if you've already got a payday loan. In each of the methods below we list how it can be used to pay off a payday loan, so you can ditch it and get out of the cycle. We wouldn't normally suggest paying off debt with other debt, but in comparison to payday loans most of the other credit products we suggest are not so bad.
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![0% credit card]()
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 need the loan to buy something. Simply get the card, then use it to purchase whatever it is the intended payday loan was for.
If you need the loan for cash. Don't withdraw cash on these cards - that won't be at the 0% and there'll be a fee. Instead, use one 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.
What to go for depends on your credit score...
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 to try
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 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 around 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).
For a full list, see Credit Cards For Bad Credit.
Important. Regardless of the 0% spending card you go for, always follow these golden rules.
- Pay at least the monthly minimum else you'll lose the 0% deal.
- Clear the card before the 0% ends, or you'll pay hefty interest.
- Don't transfer over a balance from another credit card as that's usually not at the cheap rate. If you are trying to clear expensive debts, you need different cards. See Best Balance Transfers.
How to use a 0% card to pay off an existing payday loan
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 got a good credit score, use a 0% money transferThis is a relatively rare function of a few specialist cards 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.If you've got a poor credit score, try a 0% spending cardYou 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 money 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 - but don'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 30%.
For a full list, see Credit Cards For Bad Credit.
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![alternatives to payday loans]()
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.
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 usually be charged a £12ish 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.
How to use a credit card to pay off an existing payday loan
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.
- If you can't clear the card in full, you'll pay interest even if you clear the amount you were planning to borrow.
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![loans and grants from council]()
Though not a speedy option to get cash, some people may be able to qualify for the below.
- Budgeting loans. If you're on income-based benefits (such as income support, pension credit, employment & support allowance, jobseeker's allowance or universal credit), 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.
Sadly 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 - then the money comes within a further 21 working days.
- Hardship payments and advances if you're on universal credit. If you're yet to receive your first universal credit payment (or your usual payment has been stopped or reduced) and you don't have enough money to live on, you can apply for an advance payment, which means you'll receive the initial amount early. It will then be automatically repaid back by the reduction of future universal credit payments. You can apply online or via a Jobcentre Plus. Full information at Gov.uk.
- Emergency? Try local council support schemes: Each local authority is 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 (eg, 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.
How to use this to pay off an existing payday 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. But it may work if your circumstances have changed since you took out the payday loan.
If you've been on income-based benefits (such as universal credit or one of the legacy benefits income support, pension credit, employment & support allowance or jobseeker's allowance) for at least six months, you may be able to get an interest-free loan of £100-£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.
You'll need to use the loan for the purpose it was intended for ie, essential items for your home. 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.
- Budgeting loans. If you're on income-based benefits (such as income support, pension credit, employment & support allowance, jobseeker's allowance or universal credit), 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.
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![use overdraft instead of payday loans]()
Usually we suggest people avoid using their overdraft facility if they'll incur interest. Yet even with high interest costs of around 40%, this is usually cheaper than a payday loan, especially if you can minimise the length of time you remain overdrawn,
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.
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.
How to use this to pay off an existing payday loan
Use your overdraft to pay off all (or as much as possible) of your expensive payday loan, by making a card payment or bank transfer. You'll then be overdrawn by that amount and will owe your bank instead.
Or, get a credit union loan
Credit unions are not-for-profit organisations, set up to help members save or borrow – often offering short-term lending at more affordable rates than 'normal' payday lenders. Each has a 'common bond', which is the criteria you'd need to meet before you can join. This is essentially who the credit union is set up to help, for example residents of a certain town, or employees of a particular industry.
We've listed credit unions below where many people would qualify, though the Find Your Credit Union site searches over 380 credit unions and shows you which you may be able to join, based on your home or work postcode, employer and groups or associations you may be part of.
In addition, you can use the comparison service on Just Borrow or the Finding Finance site to find further national or local options.
Credit union loan examples, with broad membership criteria
| See the Find Your Credit Union site to search hundreds of local and national options | ||
| Credit union | Typical rep APR | Key info |
| (Civil service & Communications workers) |
26.8% | Who can apply: Anyone working for the government or a communications company (such as BT, O2, Royal Mail and Virgin Media), Unite trade union members, or Northampton residents. See its full criteria |
| How does it work? You'll need to open an account with £2+ and agree to save £10+/mth. Loans start at £100 with loan terms from two weeks. | ||
| (Co-op members) |
29.8% | Who can apply: Members, employees and pensioners of many co-ops. See its full criteria. |
| How does it work? Loans start at £100 with a minimum term of six months, though you can repay early. When you join, you'll need to open a savings account, and agree to save at least £10/mth. | ||
| (Retail workers) |
30% | Who can apply: Retail workers or their families. See its full criteria. |
| How does it work? Loans start at £100 with a minimum term of three months, though you can repay early. When you join, you'll need to open a savings account, and agree to save regularly (either £5 or 10% of your loan repayment figure each month, whichever is higher). | ||
If the above options don't work for you or aren't right, you could consider a short-term payday loan. Please read each and every warning in here and consider your options very carefully before going ahead.
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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 automatically take a payment, though it's limited to two attempts to collect payment, and should only be taken on the day it is due. It can only claim the full payment required, rather than part-payments, but it can be dangerous, especially if you have other, more important bills to pay.
![recurring payments]()
How can I cancel a Continuous Payment Authority?
You have a right to cancel CPAs simply by asking the bank which runs your account. See the Recurring Payments guide for full help. We're not suggesting to cancel this and not repay, but the lack of control these types of payments give you is scary - it can be far better to call them and pay up as and when you owe the money.
If you still feel a payday loan is right for you, this information will help you find and compare short-term loans.
First, here are our key need-to-knows before comparing lenders.
If you've jumped straight here - please read the cheaper alternatives first. Payday loans are expensive and should be considered as a last resort.
- Find out the real price to you. 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.
- Watch out for payday loan brokers. Payday loan brokers will look like payday lenders, but they won't be able to lend to you. Instead, they'll charge you a fee 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.
- Ensure the company is legit. 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. It's important to do this as some payday lenders operate illegally.
- Make sure you know the application criteria. 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.
- Watch out for marketing opt-ins. 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.
If you've read all the warnings above and are still sure a payday loan is right, these short-term loan comparison sites at least compare multiple loans...
All the lenders and Choose Wisely compare a range of short-term lenders. Though be warned, these sites still contain VERY expensive loans, so use them at your own risk.
Neither will compare every loan provider, though both do have an eligibility checker which will show you which lenders are likely to accept you. This uses a soft search check, so won't impact your credit score. However if you then go on to apply, this will leave a search that other lenders can see.
You can compare loans with a minimum term of three months, though look for lenders that allow you to pay off the loan early without penalty – remember the quicker you can clear the loan, the less interest you'll pay.
If your loan provider has charged you the wrong amount, taken the wrong amount in payment, or its service has been atrocious, then you don't have to suffer in silence. It's always worth trying to call your lender first to see if it can help, but if it can't (or won't), or it doesn't get back to you...
Free tool to help you complain
This tool helps you draft and manage your complaint. It's totally free to use, and it's offered by Resolver, a firm we work with to help people get complaints justice.
RESOLVER – FREE COMPLAINTS TOOL*
If the company won't help, Resolver also helps you escalate your complaint to the free Financial Ombudsman Service.
Spotted out of date info/broken links? Email: brokenlink@moneysavingexpert.com
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