Monday 16th Feb, 2026
If you are in urgent need of extra cash, it’s really important to understand the risks of certain types of credit and to be aware of other ethical alternatives before you apply.
Recent years have seen a big growth in firms advertising ‘get-cash-quick’ solutions cleverly marketed as ‘Payday Loans’, ‘No Credit Check Loans’, ‘Doorstep Loans’ and so on. While these loans may seem attractive, remember they are promoted by firms whose main motive is to make big profits from those they lend to, rather than supporting your financial wellbeing. They come with extremely high interest rates and/or fees, making it all too easy for the unwary borrower to get sucked into a vicious cycle of crippling debt.
Payday Loans are marketed as short-term loans to help you cope with unexpected expenses, which you are intended to repay when you next get paid. They are often targeted at people with a poor credit score who may struggle to access affordable credit elsewhere. While they may be easy to get accepted for, the interest charged often exceeds 1,000% APR (despite new rules capping it at 0.8% per day). If the loan can be fully paid off on pay day, this may not be too much of a problem.
But when next month comes around, the borrower may well struggle to find extra funds to repay their Payday Loan on top of all their normal outgoings. Then they are faced with taking out another loan to cover the shortfall, rolling it over, or missing the repayment and incurring extra fees. Interest on payday loans is charged daily. So the bigger the loan and the longer you go without repaying, the more you’ll be charged in interest and fees.
Instead of a ‘Payday’ Loan, you actually end up with ongoing high-cost credit. For example, a £1,000 payday loan borrowed over 6 months may have a fee of £933, making the total repayable £1,933, almost double the original debt. By comparison, if you borrowed the same amount from a Credit Union at 42.6% APR over 12 months, the total repayable is £1,206. So, borrowing from your Credit Union works out £727 cheaper over a year than what some Payday lenders charge for just 6 months!
This is the main danger of so-called Payday loans: They can easily lead people into a cycle of unaffordable debt, from which it is difficult to escape. There’s also the impact on your credit score. If repaid on time, your credit score won’t usually be harmed. But some lenders regard taking a payday loan as a sign you are struggling to budget and manage money. Mortgage lenders sometimes won’t lend to applicants with a history of payday loans, even if fully repaid on time. Payday loans can stay on your credit report for up to six years.
To repay, you may have to set up a recurring payment (Continuous Payment Authority), which lets the lender take what you owe direct from your bank account on the due day. So, you’ll need to make sure you will have enough money in your bank for this, plus any other bills due on that day. If it takes you over your overdraft limit, bank charges will be applied.
Often called Home Credit, this is where you borrow money and the lender’s agent comes to your home weekly or fortnightly to collect the payments. Loans are usually for small amounts but you will pay a high rate of interest, and often admin or arrangement fees on top. Instead of cash loans, the agent may offer trading cheques or vouchers which can only be spent in certain shops, such as soft furnishings or clothing stores.
By way of example, Home Credit of £500 repaid at £25 a week over 31 weeks may end up costing £775 (365.1% APR). This is much more expensive than a loan from your Credit Union, a typical bank overdraft or even an expensive credit card. For this reason alone, doorstep lenders are best avoided if you have other options.
If someone offers to lend you money on the doorstep, it's worth finding out if they are genuine. You can check the FCA Register to see if they have a licence to lend. If not, they are operating illegally and should be avoided. See more about Loan Sharks here.
Home credit lenders can’t legally contact you or cold call you to offer a loan. You have to make a written request before they can visit you to discuss. Then they must give you written details of the cost of borrowing, to enable you to properly consider the offer and shop around to compare other options, without feeling under pressure. If a loan agreement is not properly made, the lender may not be able to force you to repay the money.
When looking for short-term loans, particularly online, you may come across firms offering to search multiple lenders for you. These are credit brokers not lenders, and their information must make this clear. Some are paid commission by lenders but others charge you a fee for their services. As with lenders, genuine brokers must be on the FCA Register and they can only charge you fees that you have agreed to in writing. Be wary about allowing them to share your data, as you may receive unsolicited emails, texts and calls from other brokers offering you more loans.
Credit unions are an ethical and affordable alternative to payday and doorstep lenders.
As a not-for-profit lender, HEY Credit Union uses its members’ savings to lend directly to other members. There are no brokers, no middlemen and no hidden fees. Interest rates cannot exceed 42.6% APR, which is a fraction of what payday lenders charge.
HEY Credit Union takes care to assess your affordability and allows you to spread the cost over a manageable period, helping you to budget without the shock of huge monthly payments.
Unlike banks, credit unions are happy to offer small loans if that is what their members need. To see what you could borrow, try our free and easy to use Loan Calculator.
This article is for general information only and does not constitute financial, legal, or any other form of advice.
Written by JES - Feb 2026
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