Non-bank borrowing on a low income

When a bank turns you down, the market does not disappear. A wide range of non-bank lenders operates in the United Kingdom, from member-owned credit unions and community lenders to payday firms, buy now pay later apps, pawnbrokers and rent-to-own shops. Beyond them lies the illegal market of unlicensed money lenders. For someone on a low income, the difference between these options can be the difference between a manageable repayment and a debt that takes over the household budget.

This page maps the main types of non-bank borrowing, explains how to tell a legitimate lender from a dangerous one, and sets out the help worth seeking before you borrow anything at all.

All legal lenders are regulated, banks or not

In the UK, any firm that lends to consumers or arranges consumer credit must be authorised by the Financial Conduct Authority (FCA), whether it is a bank, an app or a high-street shop. Authorisation means the lender must check affordability, treat customers in difficulty fairly and give clear information on cost. If something goes wrong, you can complain to the lender and then to the Financial Ombudsman Service. A lender that is not on the FCA register is operating illegally.

Help to look for first

Non-bank credit is often sought in a hurry. Before borrowing, spend a few minutes on these:

• a benefits check, to be sure you are receiving everything you are entitled to;
• an interest-free Budgeting Advance if you receive Universal Credit and meet the conditions;
• your council's local crisis support for food, energy and essential items;
• hardship funds from energy and water suppliers;
• free debt advice if existing bills are already behind.

Our page on urgent financial help covers these routes in more detail.

The lower-cost end: credit unions and community lenders

Credit unions

Credit unions are financial cooperatives owned by their members. They offer savings and loans, and the law caps the interest they can charge. Many lend to people on benefits or with a patchy credit history, sometimes asking you to save a small amount first. Some can take repayments directly from wages or benefits, which makes missed payments less likely and helps rebuild your credit record over time.

Community development finance institutions

CDFIs are social-purpose lenders that serve people and areas underserved by banks. Their rates are higher than a bank's but often much lower than high-cost credit, and they usually look closely at your budget. Our guide to solidarity-based lending explains how these lenders differ from commercial firms.

High-cost non-bank credit

Several products are easy to obtain with a poor credit file but expensive:

• Payday and short-term loans: capped by the FCA, so interest and fees can never exceed the amount borrowed, but the cost remains very high for a small budget.
• Home-collected credit: an agent visits to collect weekly repayments. It feels personal but is often costly.
• Rent-to-own: household goods paid weekly, often costing far more in total than buying outright.
• Logbook loans: secured on your vehicle, which can be taken if you fall behind.
• Guarantor loans: a friend or relative becomes liable if you cannot pay.

Before accepting any of these, compare the APR and total amount repayable with a credit union loan. Our page on short-term cash advances looks specifically at bridging a few days or weeks.

Buy now, pay later and pawn loans

Buy now, pay later lets you split a purchase into instalments, usually without interest if you pay on time. The risks are late fees, collection activity and the ease of running several plans at once until they eat up your monthly income. Pawnbrokers lend against an item of value without a credit check; you get the item back when you repay, but you can lose it if you cannot. Both are regulated, yet both need careful budgeting. Read more about pawn lending on our page about council support and pawnbroking.

Illegal money lenders

Loan sharks often start friendly: a neighbour or acquaintance who offers cash with no paperwork. Then the amount owed keeps growing, and pressure can turn into threats, taking bank cards or benefit documents, or violence. Signs of an illegal lender include:

• no written agreement, or one you are not allowed to keep;
• a debt that never seems to go down;
• demands to hand over your bank card, passport or benefit details;
• threats against you or your family.

You are not breaking the law by having borrowed from a loan shark, and specialist teams can help. In England, the Stop Loan Sharks service takes reports in confidence; similar teams operate in Scotland, Wales and Northern Ireland. In immediate danger, call the police.

Online scams posing as lenders

Fake lenders advertise "no credit check" loans on social media and messaging apps, approve you instantly, then ask for a fee, insurance or a deposit before paying out. A genuine lender takes its charges from the loan agreement, never as a transfer before you receive the money. Check the firm's name and contact details on the FCA register, and beware of clone firms copying the name of a real company.

Checklist before borrowing outside a bank

• Have I checked benefits, grants and interest-free advances?
• Is the lender on the FCA register, with matching contact details?
• Have I asked a credit union or community lender first?
• Do I know the APR and the total amount repayable?
• What happens if I miss a payment?
• Has anyone asked for money before the loan is paid? If so, stop.
• Will my essential bills still be covered every month?

If you are already juggling several debts, a free adviser can help you build a plan and, in England and Wales, apply for Breathing Space to pause most interest and enforcement. See our page on getting free help with debt.