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118118 Money Team  •  September 29, 2023

In today's fast-paced world, many people find themselves needing swift and reliable solutions to bridge financial gaps. While direct lender short-term loans, commonly known as payday loans, might be the first to come to mind, it’s essential to explore alternative options. This article offers insights into these alternatives.

What Are Direct Lender Short Term Loans?

Direct lender short-term loans, frequently termed payday loans, are specific financial products tailored to meet immediate cash needs. These are usually unsecured loans that individuals borrow for a brief period, often until their next payday. The name "payday loan" stems from the idea that the loan would be repaid as soon as the borrower receives their next paycheck.

Borrowers typically seek out these types of loans for sudden financial emergencies or unexpected expenses that they hadn't budgeted for such as medical emergencies or car repairs. Given their short-term nature, these loans often come with higher interest rates compared to other forms of credit.

It's crucial for anyone considering a payday loan to understand their terms thoroughly. Due to the higher interest rates and the potential for additional fees if the loan isn't repaid on time, borrowers can find themselves in a cycle of debt if they're not careful.

In recent years, as awareness of the potential pitfalls of payday loans has grown, many consumers are now looking for alternatives. This demand has led to the introduction of various financial products in the market that combine the speed and convenience of payday loans but offer more friendly terms and lower interest rates.

What sets these loans apart is the direct interaction between the lender and the borrower. This means there is no intermediary or broker involved. This direct approach can sometimes speed up the loan application process and reduce fees.

118 118 Money are a direct lender too (though we also use some broker services), however we don't offer short term or payday loans, our loan repayments range from 12 months to 5 years. 

How Do Payday Loans Alternatives Work?

Alternative options to payday loans, such as the products offered by 118 118 Money are solutions that not only address immediate financial emergencies but also help ensure long-term financial health and stability.  

  1. Varied Loan Amounts

    First and foremost, the loan amounts of these alternatives are varied. With 118 118 Money, for example, consumers can opt for personal loans ranging from £1000 to £5000. This flexibility enables borrowers to select an amount suitable for their specific requirements, whether it be consolidating debt, making a significant purchase, or handling unexpected expenses.
  2. Extended Repayment Periods

    Unlike payday loans, which typically need to be repaid by the next payday, alternative loan solutions offer more extended repayment periods.
  3. Credit Building Potential

    Another significant advantage of payday loan alternatives is the potential to build or rebuild one's credit score. By ensuring regular and timely repayments on a personal loan or credit card, borrowers can positively influence their credit score.
  4. Flexible Credit Limits

    For those considering credit card options as a payday loan alternative, there's the benefit of flexible credit limits. 118 118 Money's credit cards offer limits between £250 and £2000. This range provides consumers with the freedom to manage their spending and borrowing effectively.
  5. Transparent Fee Structures

    Payday loan alternatives often come with transparent fee structures so borrowers are less likely to encounter hidden charges or unexpected fees.

Are Direct Lender Loans the Best Option?

In the quest for immediate financial relief, many consumers turn to direct lender short-term loans due to their seemingly straightforward nature and rapid accessibility. These loans are designed to provide quick cash infusions, typically to bridge the gap until the borrower's next payday. However, while these loans may offer a convenient solution to short-term financial troubles, are they truly the best option for borrowers?

However, Direct lender short-term loans (or payday loans) often come with high interest rates, which, when combined with their brief repayment windows, can put immense pressure on borrowers. There's a risk of entering a vicious cycle where, unable to pay back the initial loan on time, borrowers find themselves taking out another loan, accumulating more debt.

In contrast, alternative lending solutions, such as credit cards or personal loans from providers like 118 118 Money, frequently offer more competitive interest rates. Moreover, they provide borrowers with longer repayment durations. The extended repayment periods mean that monthly payments are often more manageable and less burdensome on the borrower's monthly budget. 

Pros and Cons of Payday Loans Alternatives


  1. Flexibility

    Alternative loans, compared to payday loans, offer varied amounts and extended repayment periods. Whether it's a minor expense or a more significant financial challenge, there’s likely an option to suit your needs.
  2. Build credit history

    Timely repayments on these alternatives can lead to a better credit score over time.
  3. Lower APRs

    Often, alternatives to payday loans provide more competitive interest rates.
  4. Soft Credit Search

    Institutions like 118 118 Money initiate a soft credit search, meaning your credit score won't be impacted unless you decide to proceed with the loan at which point we will complete a full credit check. 
  5. Longer Repayment Durations

    Extended repayment terms give borrowers ample time to plan and manage their finances, reducing the risk of missed payments.
  6. Transparent Fees

    Reputable alternative lenders often have no hidden charges, 118 118 Money are regulated by the Financial Conduct Authority (FCA) too. 


  1. Eligibility

    The criteria might be stricter for some alternative loans, especially if you’re seeking larger amounts or lower interest rates.
  2. Long-term debt

    While extended repayment durations can be beneficial, it can also mean being in debt for a more extended period if one doesn’t strategize repayments wisely.
  3. Potential for Overspending

    Having access to larger loan amounts or credit limits might tempt some individuals to borrow more than necessary, leading to unnecessary debt.
  4. Complexity

    With varied loan amounts, interest rates, and terms, the array of choices can sometimes be overwhelming, requiring borrowers to be do more research.
  5. Early Repayment Fees

    Some alternative loan providers might charge fees for repaying the loan earlier than agreed, making it essential to read the terms thoroughly.
  6. Impact on Credit

    While building credit is a pro, failure to meet repayments can also negatively impact your credit score.

Eligibility Requirements for Direct Lender Loans

Navigating the lending landscape can be challenging, especially when understanding what qualifications are needed to secure a loan. Direct lender loans, and their alternatives, have certain eligibility requirements that help determine if an individual is a suitable candidate. While criteria might vary from one lender to another, some general requirements remain consistent across the board.

  1. Age

    It's a standard requirement across lenders that applicants must be 18 years or older.
  2. Residency

    To be eligible for direct lender loans, especially in the UK market, one usually needs to be a resident of the UK. Some lenders might also require proof of a stable address for a specific period.
  3. Income

    A regular and steady source of income is paramount. Lenders want to ensure that borrowers can meet the repayment obligations. This not only includes a regular paycheck but could also encompass other sources of income like benefits or pensions. Some lenders might specify a minimum monthly income to qualify.
  4. Credit history

    Your credit history provides lenders with a snapshot of your financial behavior. Even if you've had poor credit or bad credit in the past, lenders like 118 118 Money might consider other factors in determining eligibility. A soft credit search, which doesn’t immediately impact your score, might be used initially to gauge eligibility.
  5. Employment Status

    While having a job can increase your chances of loan approval, some lenders may also consider applicants who are self-employed or on benefits, as long as they can prove consistent income.
  6. Existing Debts

    Lenders might inquire about any other existing debts or financial commitments.
  7. Documentation

    Be prepared to provide necessary documentation. This could include proof of identity (like a passport or driver’s license), proof of address (like a utility bill), and financial statements or payslips.
  8. Direct Debit

    Some lenders may require borrowers to have a valid UK bank account capable of direct debits.

How to Apply for a Payday Loans Alternative

The process of applying for a payday loan alternative is designed to be straightforward and user-friendly, allowing borrowers to access funds swiftly and efficiently. However, it’s essential to be well-informed and prepared to make the application process even smoother by doing the following:

  1. Research and Identify Lenders

    Start by researching various lenders that offer payday loan alternatives. Platforms like 118118Money.com can be a great starting point due to their flexibility and favourable terms.
  2. Understand the Loan Offerings

    Before applying, familiarize yourself with the loan amounts, interest rates, fees, and repayment terms offered. Knowing exactly what you’re signing up for can prevent any unpleasant surprises down the line.
  3. Soft Credit Search

    One of the standout features of lenders like 118 118 Money is their use of a soft credit search to determine your eligibility. This preliminary check ensures that your credit score isn't immediately impacted, giving you peace of mind.
  4. Gather Necessary Documentation

    While the specific requirements might vary, most lenders will request proof of identity, address, income, and other personal details.
  5. Complete the Online Application

    Using the lender’s online platform, input the required details. Ensure that the information provided is accurate and up-to-date to prevent delays or rejections.
  6. Await Response

    After submitting your application, there might be a waiting period. Some lenders, however, provide instant decisions, especially if you meet their criteria.
  7. Understand the Offer

    If approved, you'll receive a loan offer. Go through this thoroughly, ensuring you understand the APR, monthly repayments, and any associated fees.
  8. Finalize the Agreement

    Once satisfied with the terms, finalize the agreement, usually through an e-signature or by providing further documentation if needed.
  9. Receive Your Funds

    After the agreement is finalized, the funds are typically transferred directly into your bank account. The speed of this transfer can vary, but with some lenders, it can be almost instantaneous.
  10. Stay Informed

    After securing the loan, regularly check your account and statements. Keeping up-to-date with your repayments and understanding any fees can save you from potential financial pitfalls.

Understanding the Repayment Terms of Direct Lender Loans

Repayment terms define how you'll pay back the borrowed amount and understanding these terms is crucial to managing your finances effectively. With direct lender loans, especially their alternatives, these terms can vary widely. It's not just about paying back what you owe but understanding how, when, and what implications there might be.

  1. Duration of the Loan: Direct lender loan alternatives often come with a more extended repayment term, providing borrowers with ample time to repay. Instead of being pressured by a looming deadline right after getting the loan (as with payday loans), these alternatives allow for monthly installments spread across a set period.
  2. Monthly Installments: The monthly installments are typically fixed, allowing borrowers to plan their finances accordingly. Knowing the exact amount due each month eliminates surprises and enables better budgeting.
  3. Interest Over Time: While the more extended repayment period provides breathing space, it's essential to understand the cumulative interest over time. Always calculate the total amount you'll be repaying by the end of the loan term. Sometimes, a longer duration might mean paying more in interest, even if the monthly installments seem affordable.
  4. Early Repayment: Some lenders offer options for early repayment. This can be a great way to reduce the amount of interest paid over time. However, always be sure to check if there are any fees or penalties associated with paying off your loan early.
  5. Fees and Additional Costs: Apart from the principal and interest, are there other costs to be aware of? Some loans come with administrative fees, late payment fees, or other hidden charges. It’s best to be aware of these potential extra costs upfront.

Comparing Interest Rates and Fees

Understanding the full cost of borrowing money is essential when considering loan options, and this boils down to more than just comparing headline interest rates. Both interest rates and fees play a crucial role in determining the total expense of a loan, and can vary widely among different lenders and loan types.

  • Annual Percentage Rate (APR): This is a comprehensive figure that represents the real cost of borrowing. The APR combines the interest rate and any associated fees to give you a more complete picture of what you'll pay over the life of the loan. For example, while payday loans may boast seemingly reasonable interest rates, the inclusion of fees and the short repayment term can elevate the APR to triple digits. In contrast, alternative lenders like 118 118 Money offer a more cost-effective choice for borrowers.
  • Hidden Fees: Beyond the interest rate, it's crucial to be wary of hidden fees. Some lenders might charge application fees, service charges, or early repayment penalties. Always review the loan's terms and conditions to ensure you're not caught off guard by unexpected costs.
  • Loan Duration: While this doesn't directly tie into rates and fees, the length of the loan can influence the total amount repaid. A shorter-term loan might have a higher APR but result in less overall interest paid compared to a longer-term loan with a slightly lower rate. It's essential to calculate the total interest over the loan's life to compare options effectively.
  • Conclusion

In navigating the world of short-term lending, it’s pivotal to consider all available options. While direct lender short-term loans can be quick fixes, alternatives like personal loans or credit cards can offer more reasonable rates and flexibility. With providers like 118118Money offering a more comprehensive range of options, UK residents now have an opportunity to select a solution best tailored to their needs.