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Alternatives to payday loans

As the FCA cracks down on payday lenders, what other options are there for borrowing small amounts?

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The Financial Conduct Authority (FCA) has introduced a cap of 0.8% per day on the amount that payday lenders can charge.

The new lending rules will start from January 2015 and effectively mean no-one will have to pay back over twice the amount borrowed,as well as a £15 cap on default charges.

Forcing unscrupulous lenders out of business

David Mann, Head of Money at, says: “This is a great victory that will help protect tens of thousands of vulnerable consumers.

“The FCA has finally shown payday lenders that it has the muscle required to take them on and from 2nd January no borrower will ever have to pay back more than twice what they borrowed.

“It also means that the most unscrupulous of the lenders – who are nothing short of modern day highwaymen – are likely to be forced out of business.”

Nowhere else to turn?

Currently those in need of borrowing small amounts of cash can consider bank accounts with overdrafts and credit cards, but most personal loans require you to borrow a minimum of £1000.

Whilst having bad credit can make it challenging to borrow money from traditional lenders there are options available, often for significantly better rates than payday loans, even with the new rules.

David Mann said: “However, today’s news doesn’t solve the escalating need for short term loans. We need more than vague promises of help to stop the most vulnerable people falling victim to loan sharks.

“The high street banks should follow the examples set in other countries by stepping up and engaging in micro-lending programs, to help those most in need of money.”

Bad-credit credit cards

Whilst the APR for these can run as high as 60%, this is still cheaper than a payday loan. Some are designed to help you rebuild your credit rating.

Current accounts with authorised overdrafts

Some bank accounts offer interest-free overdrafts between £100 and £500, others offer larger amounts but charge interest.

Personal loans

Typically the cheapest way of borrowing money over the long term, but tend to require good credit ratings, however there are higher-interest loans available to those with bad-credit scores, that will still offer more competitive rates than a payday lender.