Disclaimer: Our website and publications aim to give you general information to help you make financial decisions. It is intended for consumers of UK financial services resident in the UK. It is not advice, nor can it take account of your own particular circumstances. Our helpline can answer general enquiries about financial products and services on 0300 500 5000, and give you information and pointers to help you work out what’s right for you. For advice with a view to making decisions about your own circumstances you should consult a financial or other professional adviser.

© The Consumer Financial Education Body Limited.

Other borrowing

If you’re unable or don't want to borrow from mainstream lenders, such as a bank, other ways to borrow are available, but beware of illegal lenders (loan sharks).

Other licensed lenders (see below) often charge a much higher rate of interest than banks and building societies because they run a higher risk that some borrowers won’t be able to repay all they owe. Their costs are also higher because they tend to lend smaller amounts and over shorter periods than mainstream lenders. Rates can vary considerably though, so it pays to shop around. If you see online adverts for credit, don’t be misled – some can be a very expensive option. To improve your chances of getting the best deal, check your credit report carefully with a credit reference agency and improve it if you can.

Loans are also available from the government’s Social Fund. It offers interest-free loans to help you budget or manage in a crisis if you’re on a low income.

Watch out as you may come across illegal lenders (also known as loan sharks). Avoid borrowing from them.

Our free Borrowing money printed guide also sets out your options. You can download or order it online – see Free printed guides.

If want to consider cheaper mainstream borrowing options see Types of borrowing.

Credit unions

Credit unions are owned and run by their members, for their members. Some credit unions may lend to you as soon as you become a member. Others will lend to you after you have shown them you are able to save regularly. The APR on their loans is capped by law at 26.8%, so they often charge much lower interest rates on loans than other lenders covered in this section do. Credit unions may also be able to help you manage your money.

To find out if there is a credit union you can join and what it offers, contact the trade associations in Related links. For more information on credit unions, get a free copy of our Credit unions printed guide. You can download or order it online – see Free printed guides.

Community Development Finance Institutions (CDFIs)

CDFIs are independent organisations which aim to help people who have trouble getting finance from usual sources such as banks and building societies. Unlike credit unions, though, there is no cap on the interest they charge. You may find a local CDFI that can help you manage your money and lend to you on the Community Development Finance Association’s website – see Related links.

Home credit (also known as doorstep lenders)

Money lent to you by doorstep lenders, who collect repayments in the home, can be expensive. The law says they are not allowed to give you a loan the first time they visit you. They can only give you information and make an appointment for another visit, so you have time to think about their loan offer. If you do consider taking out a loan from them, then as well as checking the APR, you should:

  • check they are licensed by the OFT – see Related links. If they aren’t licensed, they are operating illegally, so don’t use them – see Illegal lenders;
  • be clear about the amount you are borrowing, how much you must repay and for how long you will be making repayments;
  • ask how much in total the loan is going to cost you;
  • make sure you understand what will happen if you can’t keep up the repayments.

You can compare home collected loans on Lenders Compared, an independent comparison website – see Related links.

Growth Fund lenders

Some credit unions and CDFIs offer affordable loans using money made available from the government’s Growth Fund. This may help you if you’re on a low income. You can find a local Growth Fund lender on the Department for Work and Pensions’ website – see Related links.

Social Fund loans

You may be able to get a loan from the government’s Social Fund. The loans are interest-free but you must pay them back. Your repayments will usually be taken out of the State benefits you receive.

  • Budgeting Loan – if you receive a qualifying State benefit and need help with certain important costs, such as the costs of looking for work or repaying debts you took out to pay for certain items.
  • Crisis Loan – if you need financial help with an emergency or disaster.

For more information on these loans from the Social Fund, see Related links.

Payday loans

Payday, or paycheque, loans are short-term loans that you get in return for your pay cheque or proof of your income. They are basically cash advances on the salary you're expecting and are available online and on the high street.

They can be a useful way of getting your hands on your wages quicker than you otherwise would, but it is important to be aware of the high interest rates charged and the consequences of falling behind with your repayment. Rates higher than 1,000% APR are not uncommon, so if you miss the repayment the cost of borrowing even a small amount can become very high, very quickly.

Before using this type of borrowing you should always check out what else is available to you. Can you get an overdraft to cover you until payday?

If you have no alternative to a payday loan then make sure you fully understand the costs and charges and don't borrow for a day longer than absolutely necessary.

Pawnbrokers

Borrowing from a pawnbroker may be an option if you have a valuable item. You must leave the item (the pawn) as security in return for a loan. You normally have six months to pay back the loan in full with interest. In return you will get back your item. But if you cannot repay the loan in full by the agreed date, the pawnbroker may keep or sell your item. To find out more about how it works, what you will have to pay and your rights visit TheSite.org – see Related links.

Logbook loans

You may see these offers on the high street or on the internet promising cash fast. A logbook loan is a loan secured on your vehicle. You will be asked to hand over the logbook (vehicle registration document) and sign a document called a bill of sale (or another form of agreement in Scotland as bills of sale aren’t used there). The lender then becomes the owner of your vehicle, but you are still able to use it if you meet the loan repayments. Think very carefully before taking out this kind of loan as:

  • the APR is likely to be very high – it can be higher than the APR charged for home credit;
  • your regular payments may only be repaying the interest charges until the last month of your contract when you will be expected to repay the loan itself;
  • if you fall behind with your payments, even just once, the lender can take your vehicle to sell it without going to court (but your rights may be different if you took out the loan in Scotland); and
  • if your vehicle is sold for less than the amount you owe, you will still be responsible for paying the shortfall, which can be pursued through the courts.

Consider other types of borrowing before agreeing to a logbook loan, especially if you can’t do without your vehicle. There may be cheaper ways you can borrow which don’t put you at such a risk of losing your assets. Logbook loans can be complex, so if you plan to take one out make sure you ask the lender to explain anything you don’t understand. It’s particularly important you understand your responsibilities under the agreement to help you minimise the risk of losing your vehicle.

The law only recognises the bill of sale if the lender registers it with the High Court. If it’s not registered, the lender must get a court’s approval to repossess your vehicle. So if you think you may fall behind with your loan repayments and want to know what will happen to your vehicle, you will need to check if the bill of sale is registered. You will need to give both your and your lender’s name and address with a £40 fee to the High Court:

Room E15
Royal Courts of Justice
Strand
London
WC2A 2LL

The Government is concerned about people losing their vehicles unfairly and is considering whether to ban logbook loans that include bills of sale to consumers.

Illegal lenders (also known as loan sharks)

Anyone lending money without a licence from the Office of Fair Trading (OFT) is breaking the law. You can check with the OFT if a lender has a licence – see Related links. Make sure you avoid loan sharks because:

  • their rates will be very high and you may find it difficult to keep up the repayments;
  • you may be forced to get a second loan to pay off the first, causing your debts to spiral out of control;
  • they may use violence or intimidation to collect debts.

Report any loan sharks that approach you – see Directgov’s Stop Loan Sharks website or call their helpline – see Related links. Call their helpline if you’ve already taken out a loan with one and are having problems with the loan or are being threatened.

Every region of Great Britain has a team that is dedicated to providing you support if you’re a victim of a loan shark. Teams investigating loan sharks aim to take them to court. If a court decides they have broken the law, the loan shark may go to prison.

You are not breaking the law by borrowing from a loan shark and you cannot be legally made to pay back the loan.

Find out more about the dangers of loan sharks from a BBC video clip – see Related links.

Top tips

  1. Make sure you understand the costs and charges of these options.
  2. Don't borrow for longer than necessary. You’ll pay less each month, but you could pay more interest overall.
  3. Don’t borrow money from a lender without a licence.