12 Days of money-saving: why you don't need a payday loan

ATMGareth Fuller/PA Wire

In an ideal world we'd never need to borrow at short notice. For the vast majority of the time we would live within a carefully orchestrated budget, and on the rare occasion where we need to spend more, we have a sensible savings pot put aside to cover emergencies. In the real world, there are times when we all need to borrow.

The payday loan sector has been built on this universal weakness. However, we don't have to fall prey to the insane interest rates charged by these companies, because there are a few other options for borrowing at short notice.


1. 0% credit card

There are two provisos. First, the emergency spending would need to be something you could put on plastic. Second, in order to access a card offering 0% on spending, you'll need an impeccable credit record.

To ensure you don't get led astray by this facility, you also need to be tough on yourself. You will need to ensure that you budget carefully so you can guarantee that by the time the 0% rate ends, you have paid the cash back, otherwise it will be shifted to a punishing interest rate, and you'll be faced with a large ongoing burden of debt.

2. 0% overdraft

If you need cash, you can shift to a bank that offers a 0% overdraft. First Direct offers a small buffer at 0%, which is well worth considering.

3. Buy-now-pay-later

This depends on the retailer you are buying from offering a 0% deal. If your emergency requires, for example, a new washing machine, then it makes sense to buy one at 0%.

However, the usual rule applies. You it is absolutely imperative that you save up to pay this back by the time the interest-free period expires. If you miss the deadline, most retailers will backdate the interest for the full interest-free period, which can be financially crippling.

4. Peer-to-peer lending

If you have a great credit record, you can borrow at competitive rates through a peer-to-peer lending organisation like Zopa.

You tell them how much you want to borrow, and for how long, and people who are looking for somewhere to put their money will lend it to you. The only real warning with services like this is to look for the admin charges, and make sure you factor it in when you're working out the cost of the loan.

5. Credit unions

These work a bit like the peer-to-peer lenders, but tend to be community organisations where members have something in common - such as a profession or location. Loan rates tend to be lower than among profit-making organisations, and in some instances terms are more flexible too. It's worth investigating what is available locally, and whether they have something to suit you.

Of course, none of these options are cheap. Borrowing is always an expensive business. It means that before you borrow, it's worth considering every possible alternative to avoid having to make a purchase. It's always far better and far cheaper to save first and buy second - rather than the other way around.
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