If you are thinking about a payday loan, there are other options worth looking at first. Several of them cost less, carry lower risk, or involve no interest at all.
This article is information only. It does not constitute financial advice and does not tell you which option is right for your situation. If you are under serious financial pressure, speaking to a free debt adviser before borrowing anything is worth considering.
What are the main alternatives to payday loans?
Several alternatives to high-cost short-term credit exist in the UK. The right one depends on your circumstances: whether you are employed, whether you receive benefits, how quickly you need the money, and whether your difficulty is a one-off or part of a wider debt problem.
The main options are: credit unions, salary advance schemes, DWP budgeting loans, hardship grants and charitable funds, basic bank accounts, and free debt advice if the underlying issue is broader than a single shortfall.
None of these come with automatic acceptance. Lenders and schemes all apply their own checks, and eligibility varies.
What can go wrong with payday loans and why does it matter?
Before looking at alternatives, it is worth understanding what makes payday loans costly.
Payday loans are a form of high-cost short-term credit (HCSTC) regulated by the FCA. The FCA sets a price cap on HCSTC: interest and fees are capped at 0.8% per day of the amount borrowed, default fees are capped at £15, and the total cost (interest, fees, and charges) can never exceed 100% of the original loan amount. Full details are set out on the FCA's HCSTC price cap page. Even with these caps, costs are significantly higher than most other forms of borrowing, and a short-term loan can carry an Annual Percentage Rate (APR) running into the hundreds or thousands of per cent.
The main risks are:
- Rollover and repeat borrowing. If you cannot repay on time, rolling the loan over adds more charges. Borrowing again to repay the original loan can create a cycle that is hard to break.
- Impact on your credit file. Multiple payday loan applications, or missed repayments, can affect your credit record, making other borrowing harder.
- Affordability pressure. Repaying a lump sum plus charges on your next payday can leave too little for essentials, creating a new shortfall.
If any of these sound familiar, free debt advice may be a more useful starting point than another loan.
What is a credit union and how does it work?
A credit union is a financial co-operative owned by its members. Members save together and the credit union lends those savings to other members at rates that are capped by law.
The interest rate cap on credit union loans in Great Britain is 3% per month (42.6% APR), as set under the Credit Unions Act 1979 and confirmed by the Prudential Regulation Authority. That is much lower than most payday loan rates.
To borrow, you usually need to be a member first. Some credit unions require a period of saving before you can borrow; others offer loans more quickly. Membership is based on a common bond, such as where you live, where you work, or your profession.
Credit unions assess affordability as part of their lending decision. Being declined by a bank does not mean a credit union will also decline you, though they will still check that repayments are manageable.
The credit unions guide has more detail on finding one near you.
What is a salary advance scheme?
Some employers offer salary advance or earned wage access schemes. These let you draw part of your earned wages before your usual pay date.
Because you are accessing money you have already earned, there is usually no interest. Some schemes charge a small flat fee per transaction instead.
Be careful about using these regularly. Each advance reduces what lands in your account on payday, which can make the following month harder. If you find yourself needing an advance most months, that may be a sign that a broader look at your budget, or a conversation with a debt adviser, would help.
Not all employers offer a scheme. If yours does, checking the terms carefully before using it is worthwhile.
Are there interest-free loans available from the government?
If you receive certain benefits, a DWP Budgeting Loan may be available. These are interest-free loans for essential costs such as furniture, household equipment, clothing, or travel expenses related to work.
To be eligible, you usually need to have been receiving a qualifying benefit for at least six months. Repayments are deducted automatically from your benefit payments, so there is no separate bill to manage.
The amounts available, and qualifying benefits, are set by the government and can change. MoneyHelper and GOV.UK are useful places to check current eligibility rules.
If you are on Universal Credit, a Budgeting Advance serves a similar purpose.
What about hardship grants and charitable funds?
Grants do not need to be repaid. Several types exist:
- Local welfare assistance schemes. Many local councils run emergency funds for residents in financial crisis. Availability and amounts vary by area. A useful first step is to search for your local council on GOV.UK or use the MoneyHelper local help finder to see what is available where you live.
- Charitable funds. Various charities provide grants to people in specific circumstances, such as former employees of a particular industry, people with a certain medical condition, or families with children. Turn2us is a useful starting point for searching these.
- Utility and energy fund support. Energy suppliers and the British Gas Energy Trust operate hardship funds for customers struggling with bills.
Grants are not always easy to access and availability changes. They are worth checking before borrowing, because money that does not need to be repaid carries no repayment risk.
What are basic bank accounts, and do they help?
A basic bank account is a simple current account with no overdraft and no credit facilities. It allows you to receive wages or benefits, pay bills by direct debit, and use a debit card.
The FCA has published requirements for nine major UK banks and building societies to improve access to basic bank accounts (see the FCA's work on access to banking and basic bank accounts at fca.org.uk). These banks are legally required to offer them to people who may not qualify for a standard current account. Note to editor: the specific July 2026 publication reference should be confirmed against the named FCA document before this article is published, to ensure the date and scope are accurately reflected.
If you do not have a bank account, or are struggling to open one, it is worth approaching your current bank or another provider to ask specifically about their basic account. Having a bank account is a practical step that can make it easier to manage money and access other services.
A basic account does not provide credit, but having one can help over time by establishing a financial footprint and making it easier to move money around without paying fees.
What to check before taking out any short-term borrowing
Before borrowing in any form, a few checks are worth making:
- Is this a one-off shortfall or a recurring pattern? If money is tight most months, a loan is likely to make the situation harder rather than easier.
- Have you checked all non-borrowing options first? Benefits entitlements, council tax support, food banks, and utility payment plans do not create debt.
- Is the lender or scheme FCA-authorised? Checking the FCA Register before using any credit provider confirms it is authorised and regulated.
- Do you know the total cost of borrowing? The total amount repayable matters more than the weekly or monthly payment figure.
Free debt help: where to turn if you are struggling
If the pressure you are under is broader than a single bill, free advice is available and it does not cost anything to use.
StepChange Debt Charity, 0800 138 1111 (freephone, including mobiles). StepChange offers free debt advice and can help set up a debt management plan, apply for Breathing Space, or explore other options.
National Debtline, 0808 808 4000 (freephone). Run by the Money Advice Trust, National Debtline offers free, independent debt advice by phone and online.
MoneyHelper, 0800 138 7777. MoneyHelper is a free government-backed service covering debt, benefits, budgeting, and money guidance. It also has an online debt advice tool.
Breathing Space is a legal protection available in England and Wales, introduced under the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (SI 2020/1311). It pauses interest, fees, and most enforcement action on debts for 60 days while you work with a debt adviser. A debt adviser applies for it on your behalf. It gives you time to understand your options without the pressure of further charges building up.
Frequently asked questions
Can I get a credit union loan if I have bad credit? Credit unions assess affordability rather than relying solely on your credit score. Many will lend to members who have been declined elsewhere, though they will still check whether repayments are manageable. Membership is usually required first.
What is a budgeting loan from the DWP? A budgeting loan is an interest-free loan from the government for people receiving certain benefits for at least six months. It covers essential costs such as furniture or clothing, and repayments come directly from benefit payments.
Are salary advance schemes safe to use? They can be useful for a one-off shortfall, but using them repeatedly makes budgeting harder because each advance reduces your next pay cheque. Checking whether a fee applies, and using the scheme sparingly, is advisable.
What is Breathing Space and who can use it? Breathing Space pauses most debt interest, fees, and enforcement action for 60 days while you get debt advice. It is available to anyone in England or Wales struggling with debt. A debt adviser applies for it on your behalf.
What if I cannot access any of these alternatives? Free debt advice is a useful starting point. Advisers from StepChange, National Debtline, or MoneyHelper can help you work out what is open to you, including whether Breathing Space or a debt management plan might apply.
Do basic bank accounts help with access to cheaper credit? A basic bank account does not itself provide credit, but having one makes it easier to receive wages or benefits and to build a financial record. The FCA has required major UK banks to improve access to basic accounts for people in financial difficulty.
Related guides and further reading
Sources: Financial Conduct Authority (FCA), including the HCSTC price cap; Credit Unions Act 1979; Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (SI 2020/1311); MoneyHelper; StepChange Debt Charity; Turn2us.
- Can I get a credit union loan if I have bad credit?
Credit unions assess affordability rather than relying solely on your credit score. Many will lend to members who have been declined elsewhere, though they will still check whether repayments are manageable. Membership is usually required first, which takes a short time to set up.
- What is a budgeting loan from the DWP?
A budgeting loan is an interest-free loan from the government for people who have been receiving certain benefits for at least six months. It can help with essential costs such as furniture, clothing, or moving expenses. Repayments are taken directly from your benefit payments.
- Are salary advance schemes safe to use?
They can be useful for a one-off shortfall, but using them repeatedly can make budgeting harder because each advance reduces your next pay cheque. Check whether your employer's scheme charges a fee, and be careful if you find yourself needing an advance most months.
- What is Breathing Space and who can use it?
Breathing Space is a legal protection that pauses most debt interest, fees, and enforcement action for 60 days while you get debt advice. It is available to anyone in England or Wales who is struggling with debt. A debt adviser applies for it on your behalf.
- What if I cannot access any of these alternatives?
If none of the alternatives are accessible, free debt advice is a useful starting point. Advisers from StepChange, National Debtline, or MoneyHelper can help you work out what options are open to you, including whether Breathing Space or a debt management plan might apply.
- Do basic bank accounts help with access to cheaper credit?
A basic bank account does not itself provide credit, but having one makes it easier to receive wages or benefits and to build a financial record. The FCA required nine major UK banks to improve access to basic accounts in July 2026, making them easier to open for people in financial difficulty.