Payday loan best buys?

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

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Get cash: 1 day - 2 weeks

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).

   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.

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). 

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. Ordinarily, you can borrow between £1,500 and £15,000 for between one and five years but if you go through the MSE link, it's £1,000 up to £15,000.

The representative APR in both cases is 18.95%, but only 51% of accepted applicants need to be offered that rate. The highest APR that CU Loans will charge people going direct to their web site is 42.6% whereas it's 27.9% through the MSE link.  As with any deal, it pays to compare the small print.

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.

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.

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

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 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 35%.

 For a full list, see Credit Cards For Bad Credit.

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