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payday loan best buys

Short-term and payday loans

How best to borrow small amounts for a few months

Martin Lewis
Martin Lewis
Updated 19 January 2021

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 have an existing payday loan, and you're struggling to meet payments due to the effects of coronavirus on your income, you can apply for a one month payment holiday any time before 31 March 2021. See our Coronavirus Finance and Bills Help guide for more information.

If you're currently in financial hardship, see our Debt Problems guide for what to do and where to get help.  

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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.

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STOP. Do you really NEED to borrow?

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...

  • Do you need it? Try Martin's Money Mantras

    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.

  • Flog your stuff for cash

    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, clothes, toys or other old items you have sitting around at home 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.

  • Check this isn't just a budgeting problem

    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.

  • What could you give up to find the cash?

    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.

  • Earn under £73,000? Check if you're entitled to any benefits

    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.

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

    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.

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  • Check for grants and support

    We've listed details of help available from energy companies if you've large arrears on your gas, electricity or water bills below, though see our Housing & Energy Grants guide for full info. 

    • Gas & Electricity: To apply for help with energy arrears, you'll usually need to be an account holder and complete a full income and expenditure budget sheet. You'll also need to provide proof of your income, plus give details on how your arrears have built up, eg, due to illness or redundancy, and say how the grant will help you. It can take several weeks to process your claim.

      Exact requirements vary – some say you need to be in receipt of certain benefits for example – but those with the greatest need are prioritised on a case-by-case basis.

      Additionally, these companies sometimes offer help with essential household items. Essential items are covered by Further Assistance Payments and can include white goods, boiler repairs or funeral costs. Alternatively, the Turn2us grant search can help you check for charities that might be able to help with the cost of white goods and other essential items.

    • Open to anyone (not just its customers): British Gas Energy Trust.

      Open to their customers only: EDF Energy Customer Support Fund / E.on Energy Fund / Npower Energy Fund  / Scottish Power Hardship Fund / Ovo Energy Fund.

      For more advice on these schemes, contact Simple Energy Advice and the Energy Saving Trust (EST) if you're in England and Wales. The Energy Saving Trust also cover Scotland and Northern Ireland.

    • Water: If you're having trouble paying your water bill and have fallen into debt, contact your water company to see what help it can offer. All companies offer some kind of help – this can be anything from providing repayment plans, discounts or even a cap on how much you pay.

      What's available varies from company to company. Don't worry if you're unsure which scheme is best for you. Call your provider and it will assess your circumstances and decide which one will save you the most money. For more, including a full company-by-company breakdown, see Get help if you're struggling to pay your bills.

      The Turn2us website also has info on all the water company schemes.

  • FREE one-on-one money or debt help

    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 Advice, National Debtline, StepChange 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.

Cheaper alternatives to payday loans

help if you have a payday loan

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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  • 1. A 0% credit card is the cheapest option, even for poorer credit scorers

    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. 

    1. Pay at least the monthly minimum else you'll lose the 0% deal. 
    2. Clear the card before the 0% ends, or you'll pay hefty interest. 
    3. 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 transfer
     
    This 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 card
     

    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 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.

  • 2. Even a normal credit card offers interest-free spending, if you pay it off IN FULL

    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.

  • 3. Check if you're eligible for a 0% government loan of up to £812

    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.

  • 4. Turn to family for help

    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 round 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.

  • 5. See if your local credit union will offer you a loan

    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. 

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

    How to use this to pay off an existing payday loan

    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. 

  • 6. Can you extend your overdraft? It's usually cheaper than a payday loan

    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

Commsave

(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. 

Retailcure

(Retail workers)

 28% Who can apply: Retail workers or their families. See its full criteria.
How does it work? Loans start at £250 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).

Co-op

(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.

Short-term/payday loans

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. 

  • 1. Borrow as little as possible and budget to pay it off as soon as you can

    Many payday lenders 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. Most lenders will let you pay the loan off early. This means you could repay a three-month loan after just a few days or weeks, without paying any penalties - though double check before taking out loan if the lender charges any early repayment fees. The quicker you repay, the less interest you will rack up, so the overall cost will be much cheaper.

    Even if you stick to the agreed repayment term, always, always have a plan for how you'll pay back the money. See How to Budget for help to manage your finances.

  • 2. If you know you can't repay on time, avoid at all costs. If you later can't pay, tell your lender immediately

    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. (If you're given one, you've been mis-sold. See our tool and guide in Reclaim Payday Loans for Free.) No matter how desperate you are, the end result will leave you much worse off.

    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.

    If you're later unable to pay, contact the lender immediately.

    If you take out a loan with a plan to pay it back and something later goes wrong so you can't, contact the lender as soon as you can and ask it for help. 

    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 should then offer you a fair and affordable way to repay, such as a structured repayment plan and the freezing of interest and charges, 

  • 3. Don't take out a payday loan to repay another. 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 each and every month. If that's happening to you, there's a fundamental problem that a payday loan will only make worse not better. An irresponsible lender will take advantage of this. If this is happening, you've been mis-sold. Go to our free tool and guide Reclaim Payday Loans for Free.

    To stop being sucked in a downward spiral, the most important thing to do is to sort out a budget to try to balance your costs and income.

    It's easy to be tempted 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. See this story from forumite leopardxgirl as a stark warning.

    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.

  • 4. 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 a payday loan stop me getting a mortgage?

    A few mortgage lenders 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.

    I've seen adverts saying a payday loan can improve my credit rating. Is that true?

    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.

  • 5. They are an expensive form of borrowing, though there is a cap on charges and interest

    There are three elements to this cap:

    • Lenders can only charge 80p interest per £100 per day (0.8%). 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.

      This is more relevant than the APR you'll see displayed. This stands for the Annual Percentage Rate, and essentially tells you the cost of borrowing if you were to have it over a year. 

      As you're borrowing over a short period, even a small fee can become an astronomical APR. Payday loans are expensive but 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.

    What exactly is APR?

    APR stands for the Annual Percentage Rate, and it's the official rate used for borrowing. When it's calculated it has to include:

    • The cost of the borrowing, so the amount of interest charged plus
    • Any associated fees that are automatically included, such as an application or annual fee

    An APR is therefore meant to give you the overall equivalent cost of a debt, which you can then use to compare against other credit and loan products. It must be displayed by a lender before any agreement is signed. 

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

    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 how an APR can confuse as much as it can clarify what's really going on.  

  • 6. Every legitimate lender will do a credit check and check you can repay. Avoid any that claim it won't

    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. Irresponsible lending is mis-selling. See our free tool and guide Reclaim Payday Loans for Free.

    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?

  • 7. The lender will have authorised access to take money from your bank account

    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.

  • 8. Always check a lender is registered with the FCA first. Payday lenders can be bad – loan sharks are MUCH worse

    Payday loan companies, though they may lay traps for you, are authorised by the FCA (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 they use horrific methods - including violence and threats of violence against the borrower, their family or children - to get their money repaid.

    How do I report an illegal loan shark?

    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, visit StopLoanSharks or download its app (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 is authorised by the FCA.

How to find and compare short-term loans

If you've jumped straight here - please read the cheaper alternatives first. Payday loans are expensive and should be considered as a last resort.

illustration
compare payday loans

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.

  • 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.  

Want to complain about your loan provider?

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.

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