Alternative credit options

We appreciate that payday loans and other traditional loans are not for everyone. Whether you are looking for different rates or trying to find a loan for bad credit, there are several alternative ways to borrow money.

Borrow from credit unions

There are over 400 credit unions in the UK that offer low-cost loans and current accounts. As non-profit organisations that started in the 1940s, borrowers can borrow a few hundred or thousand pounds and pay very low interest rates, which are capped at a maximum of 3% per month or 42.6% per year.

Anyone can run a credit union provided that they all have a ‘common bond’ such as belonging to the same church, charity or organisation.

To be eligible, you must be a member of your local credit union so you can only apply to the one in your area and you can find your nearest one here. The products on offer are typically reserved for public sector workers such as policemen, teachers, nurses, and street workers.

There are no hidden charges or early repayment fees with credit union loans. You automatically get life insurance when you apply so even if you die during the loan term, there will not be any outstanding debt. (Source: MoneyAdviceService)

Repayments can be made via direct debit, face-to-face, directly through your work wages or via any Paypoint. The only disadvantage is that the loan process takes longer than a standard online loan and it can take up to two weeks to receive the funds into your account.

Peer to peer lending

Peer to peer lending is a fast growing industry in the UK. The loans of up to £25,000 are offered by companies that match up a borrower with someone willing to lend to them.

Borrowers use peer-to-peer lenders because they can get access to funds and pay an interest rate depending on their credit score. Whilst the best rates are reserved for those with a good credit rating, it gives a chance to those with bad credit to get the finance they need because they simply pay a higher interest rate, due to their greater risk of default.

For the other member of the public willing to lend out their money, they have the opportunity to get annual interest rates of up to 6%, which is considered far more than the rates of an average savings account. Lenders can earn more based on risk, so if they are willing to lend to someone with bad credit, they can potentially earn more.

The peer-to-peer lender acts as a facilitator between the two parties and takes a commission for organizing and collecting the loan. For more information, read here.

Crowdfunding

Crowdfunding or ‘crowd sourcing’ is a new way to collect money from a number of people. Without any credit or affordability requirements, individuals are able to create their own profile page on one of the many crowdfunding websites.

By stating the reason that they need money such as starting a business, paying for an emergency or raising money for charity, they can invite their contacts through email and social media and ask for contributions.

By tapping into the crowd, the fundraising project can become popular on social media and generate lots of contributions from people they know and people they don’t. Some donators may receive a small share of a company or business idea for investing their money and some will just reap the personal satisfaction of making a donation.

The crowdfunding platform that hosts the profile page and manages all the transactions will typically take an administration fee of 5-15% of the amount raised.

Save money

It is always important to have money saved for a rainy day. UK households are recommend to have at least 3 months worth of their salary saved for an emergency purpose and having this resource available can help avoid the need for expensive loans.

Consider creating a budget planner where you put all your income and outgoings onto a piece of paper, spreadsheet or use an online planner. To increase your savings, work out where you can save money on areas such as groceries, utilities and entertainment.

Avoid keeping disposable cash lying around the house or underneath a mattress. Think about putting your savings into an ISA, savings account or use peer to peer lending.

Invest smartly in your birthday, Easter, Halloween and Christmas decorations and costumes so that you can use the same ones year after year and avoid having to pay for new ones each time.

Selling household items

We have hundreds or even thousands of pounds worth of items around the house that we don’t use. Think about taking all your unwanted clothes, artwork, electronics and toys to the local car boot sale.

With the use of the Internet, it has never been easier to sell the things you don’t want any more. Whether its through EBay or Gumtree, you can potentially sell your goods to hundreds of people all over the world – all you need to do is create an account, upload information about your items, send it off in the post and get paid straight to your bank account.

Also, if you have any unwanted mobile phones, CDs or DVDs, they are several companies online that allow you to pop them in the post for free and get money straight into your bank account in return.