Payday Loans: are there any alternatives?
Written by PayPlan on 31 January 2020
The wrong way to use a payday loan
Many people have a negative perception of payday loans and lenders, and this is largely due to the amount of horror stories that have emerged about them over the years. Most of us have read an article where a borrower has ended up paying thousands of pounds in interest, or began using one payday lender to pay another off and finding themselves in an endless cycle of paying off debt without actually becoming debt-free.
More often than not, stories such as this come from people borrowing far more than they can afford to pay off, or missing the deadline by which they’re supposed to make their repayment. Due to the high interest rates that allow payday lenders to be profitable, this results in some borrowers racking up huge amounts of interest that’s often far more than they were lent in the first place.
To make things worse, missing your repayment date often means you’ll begin racking up costly late charges for every day you’re late with your repayment which, combined with the interest you might already owe, can become extremely expensive very quickly.
The ‘right’ way to use a payday loan
Since the demise of Wonga, many new payday loan providers have sprung up to take its place. Nowadays, consumers are more likely to turn to Sunny, QuickQuid or Lolly if they’re looking for an instant cash transfer. The most commonly used ones are the direct lender payday loans; with these, the money arrives in the borrower’s account within a matter of hours, or sometimes minutes, once the loan has been approved, which is why it’s tempting for people in a tight spot in urgent need of money.
Similarly, bad credit payday loans allow people who can’t get a payday advance from other lenders due to their poor credit score a chance to get credit when they need it.
Whilst these lenders still charge high interest rates for the amount you borrow, paying them back in full and on time won’t land you in crippling debt – but this doesn’t mean you shouldn’t be very careful when using them. If you’re planning to use a payday loan, you must be absolutely sure you can make the repayment on the date that you agree to, in full, and only borrow for a short time period where you can to ensure you pay as little interest as possible.
If you’re able to stick to this and accept the fact that you’ll be borrowing at an extremely high and costly rate, then a payday loan may be appropriate in some situations – although we’d still recommend checking out alternative payment options first!
Alternatives to payday loans
There are multiple alternatives to using a payday loan company – here’s a few of the most common ways to borrow money without incurring the hefty interest fees that come with payday lenders.
Borrow from a credit union
Credit unions are community organisations set up by local community members that provide financial benefits and services, including loans, to their members. The great thing about credit unions is that they charge very low interest on what they lend, with interest capped at 3% per month for credit unions in England, Scotland and Wales, and 1% per month for unions in Northern Ireland.
Ask for an early payday
If you’re only a few days away from payday and in need of money, then there’s no harm in asking your employer for an advance on your wages. This means that although you’ll have to make your next pay cheque last a little longer, you won’t have to worry about paying back any interest or charges.
Use a credit card
Whilst a credit card can still be expensive to use, they’re not as expensive as payday loans are, and will cost you less if you’re thinking of taking out a loan for a last-minute holiday or an expensive new coat. It’s important that you pay back as much as you can each month, and never borrow more than you can realistically afford to pay back.
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Filed under Industry News