In need of some credit? Be sure to know what your credit options are before jumping into the first one you find. Read on with Payday Loans Net to find out which credit options are available to you.

Payday loans are used by many people on a regular basis in the UK. Price caps that are in force through government regulations have stopped many people from overpaying very high fees and interest rates. There are a few other types of short term credit similar to payday UK loans.

In this article comparing payday loans to other credit options we shall examine:

  • What payday loans are
  • The impact of government regulation for the payday loan industry
  • Comparison of payday loans with other credit options
  • What credit unions can offer
  • Arranging an overdraft on a current account
  • The use of 0% credit cards
  • Government loans and grants
  • A comparison table of different credit options
  • Conclusions

What is a Payday Loan?

A payday loan is a small amount of cash, usually between £100 and £1000. It is designed for one to use it in case of an emergency. Such emergencies could include a boiler breaking down, car trouble or another unpredicted bill that you cannot afford until you get paid. In many cases to get some quick cash , then you agree to give some money out of the next due salary. However, some lenders are prepared to allow the repayment over longer periods, many times as long as six months.

When people use payday loans in the manner that they are there for, then they can be a lifesaver. The problem with payday loans is that many borrowers were using payday loans in the UK to support their lifestyles and spending the emergency cash on things that were not necessary. Failure to pay back a loan will result in penalties. The longer the money is left unpaid, then the more interest the cash will incur. Before the FCA imposed regulation for payday lenders, then there were many borrowers who ended up repaying much more than they had originally borrowed.

How government regulations affect payday lenders

The government had to force payday lenders to price cap their fees and interest rates to protect the members of the public who were getting into serious debt through irresponsible lending. Here are the three main elements to the recent changes in the way that they are allowed to operate.

  • Payday lenders are now allowed to only charge 0.8% interest per day on a loan. This equates to 80p per day on a loan of £100. Over the course of 30 days, then the sum of interest payable on the borrowed money would be £24.
  • Lenders are no longer allowed to charge big fees if the repayment is paid later than agreed. The price of these fees is no more than £15.
  • It is no longer possible for borrowers to pay back more than 100% of the original loan. If a person lends £100 then the maximum amount that they will be liable to repay including all fees and charges will be £200.

Payday loans vs alternative forms of credit

There are other less expensive options for people who want to borrow money for a short period of time. Let’s take a look at a few alternative options:

Speak to a credit union

Credit unions and Community Development Finance Institutions are independent co-operative organisations. They help local people who cannot get other means of finance. To use a credit union you have to have something in common with them. There are all different kinds of credit unions in the UK. Many are job-related, or by the area where you live. Some credit unions are now offering payday loan style products. However, to borrow from them, then you must become a member and in some cases show that you can save with them first.

A good example is 6 Towns Credit Union. This union offers loans to people who live or work in South Birmingham, Worcestershire or Sandwell. To join this credit union and get a loan you must open a current account with them and have your salary paid in, which you can do at the same time. The APR is a low 26.8% resulting in only £8 interest on a £400 loan for a month. These loans are there for you to pay back from your salary but you can pay a £15 extension fee to carry the loan on. Cash can be available from 1 – 3 days.

Bank overdrafts

With some bank accounts, you can arrange an overdraft quite easily that would work out much cheaper than instant payday loans as long as you observe the limit. Failure to do this would in incur a ridiculous amount of bank charges that can be as much as £25 a day. Most banks charge in the region of £5 to £10 for every day that you go over the limit or £15 per item. There are three types of overdraft:

  • An organised overdraft of a pre-arranged limit that will not have any charges
  • An unauthorised overdraft that will incur charges but cheques and direct debits will not bounce
  • An unauthorised overdraft where charges will be added and cheques and direct debits will not be paid.

An overdraft could be a good source of extra credit as long as the customer does not go over the pre-arranged limit.

For people who have a good credit score, then there are plenty of 0% interest credit cards available for them to choose from. Some of these cards offer a year free credit, as long as you pay the minimum payment on time. For those with poor credit scores, then there are still cards available that that will offer 0% interest for a couple of months which would work out like a payday loan. Once the deal is over the card will typically have interest charged at over 25%.

You can purchase whatever you need on the card, but they cannot be used to draw out cash free of charge. If you need cash, then use the card for your daily expenses until you can save the cash to use where needed. It is important always to pay the minimum repayment or face loosing the deal and to get the borrowed amount paid off to avoid hefty interest rates. It can take 2 – 4 weeks for a bank to process a credit card application.

Government loans and grants

Government loans are quite hard to come by and are not as widely available as they have been in previous years. However, it is still worth having a try at getting one. The government can pay these loans to people who are on state benefits. These kinds of loans usually run for 2 years, and the money is paid back depending on what the borrower can afford. The amount that you can borrow in case of some emergency or to pay off debts is 812 pounds.

Demand is very high for these kinds of loans. Therefore, they are quite difficult to get and go to the people most in need. You can apply for them online, and an answer should be given within 12 working days. However, applications through other means can take longer. Local councils can also have schemes in place to help their most needy residents.But, this kind of help can be even harder to get.

Here is a small chart to compare all of these borrowing options

Name of money source

Time to get funds


Total amount paid back on £400 including interest

same day



6 Towns Credit Union

1 – 3 days



Lloyds Bank overdraft

same day



Aqua credit card

2 – 4 weeks



Government loans

12 days



Payday Loans vs alternative credit options – Conclusion

When you compare the consequences that can result in not getting a quick source of cash, then payday loans can seem inexpensive. When people use payday lending responsibly, then it can be very helpful to people who have no other means of getting some emergency money fast. The problem arises when people who cannot afford them decide to take them out. Payday loans can indeed be bad for some irresponsible borrowers. However, they are far better than using illegal loan sharks who often resort to violence against family members to get their money back.

Other, more economical ways of borrowing money are available for the same short periods that people use payday loans from direct lenders for. These credit options can have less high-interest rates when you borrow money for the same amount of time. There are even ways to manipulate credit cards and overdrafts for small amounts of cash, as long you follow these certain rules. It is important before making any decisions on loaning money that you think very carefully as to whether it is really needed and that the amount borrowed can be repaid.

Chloe Winters
Chloe grew up in the countryside, but came to the city to pursue a career in economics. She fell in love with the abundance of shops, and quickly developed a passion for fashion. After blowing her first salary on a shopping spree, she realised that budgeting is the only way to go. Now, Chloe is a budgeting queen – and still manages to dress like a superstar. She loves sharing the advice and tips she gained along the way, and is excited to be part of the Payday Loans Net blogging team. Her advice to you: If I can do it, anyone can!

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