What are the alternatives to taking out a loan?

So, you’ve found yourself in a tight spot, and you need some quick cash. It can be a stressful time, but you need to make an informed choice about how to handle your finances. Taking out a payday, personal or short term loan, for example, can leave your money in a mess. In this post, we’re going to break down the disadvantages of taking out loans and offer some viable alternatives.

What’s so bad about loans?

Certain types of loan fall into a ‘bad debt’ category, offering no way to improve your finances in the long run. They tend to be an impulse or unnecessary purchase and have no realistic way to pay them back due to high-interest rates. Let’s take a look at a couple of examples:

Payday loan

In offering short-term loans for small amounts of money, internet sites and high street shops often provide payday loans. They are easy to get, but the interest rates are high. They are difficult to pay off, and you can end up paying back ten times what you borrowed.

Personal loan

Also known as unsecured loans, you take these loans from a lender or bank without securing them against any asset such as a house. As well as high-interest rates, these often come with origination fees, fixed monthly repayments and frequently attract scammers.

Short term loan

Like a payday loan, short term loans are where you pay back the amount borrowed and interest within a year of the loan. They are high risk and have the same hazard of turning into a debt cycle, taking out further loans to cover the initial loan.

What are the alternatives?

Luckily, there are viable alternatives to taking out a loan, posing less risk to your financial health. All these types of loan come with a realistic repayment plan, allowing you to clear your debt with affordable and regular payments.


An overdraft allows you to borrow small amounts of money from your bank’s current account. Some providers automatically offer this option, and with others, you need to request it. They tend to be flexible in both their borrowing and repayment options and are cheaper to repay than short term loan options.

Credit Cards

For regular spending and small amounts of money, credit cards offer a suitable alternative to loans. Your provider will set a credit limit, setting a maximum amount you can borrow and will take into account your credit score, helping prevent a debt cycle. Plus, in the UK, credit card purchases benefit from section 75 of the Consumer Credit Act, meaning the provider has joint responsibility with you for any breach of contract or misrepresentation by a retailer.


It’s useful to remember those pockets of money you might have tucked away in an ISA or savings account. Even if you were saving up for a holiday, it could be better to use this money than to pay a loan provider more than you borrowed. Some savings accounts also need notice for you to take out money, helping prevent impulse buys you can’t afford and a sensible approach to boosting your finances.

There are plenty of options when it comes to borrowing money. So, consider all your alternatives to taking out a loan and make an informed decision for your financial future.