There is no question that you do have to behave responsibly and employ some clear thinking about your financial situation, if you are contemplating applying for a payday loan.
If you need a short term loan that gives you more flexibility on the repayment date, there are services like Moneyboat UK and other similar lenders, who do offer an alternative to getting yourself into a payday loan scenario.
Payday lenders under pressure
The fact that some payday lenders have attracted the attention of the Competition and Markets Authority, who are proposing that these lenders list their interest rates on price comparison sites, is an indication of the high cost of this form of borrowing.
One of the main concerns about these payday loans is that due to the very high interest rates they normally charge, any sort of default or late payment could very quickly escalate into a scenario where your financial situation worsens, as you try to service a higher level of debt.
The Financial Conduct Authority produce annual figures on the level of borrowing associated with payday lenders and lending levels are in the region of £2.5 billion, with some borrowers signing up for as many as six payday loans during a 12 month period.
With the interest rates being charged by payday lenders coming under scrutiny, consumer groups tend to suggest that you need to file this sort of service under the “last resort” category.
There are normally a number of viable alternatives, so here are some options to consider.
Start out on the credit repair route
A number of borrowers are likely to view payday lenders as their last option, especially if they currently have a poor credit history and their options are therefore limited.
If your credit file is not exactly perfect, that will limit your borrowing options to a certain extent, depending on how bad the information on you is. If you have missed a few payments, this can be viewed more leniently than if you have court judgments for example.
Your goal should be to try and repair your credit score so that you can qualify for more lending options. Having a better credit score will often be reflected in the interest rate that you are charged.
One way to get on the credit report road to recovery would be to apply for what are referred to as “credit repair” credit cards. These credit cards start off with a low credit limit, which is increased as you demonstrate your ability to make payments on time, so they can give you access to some funds, at a much lower rate than you would be charged for a payday loan, and you improve your credit rating at the same time.
Join a credit union
There are plenty of credit unions around and there may be a suitable one to join in your area.
The benefits attached to joining a credit union, if you meet their acceptance criteria, is that it opens up the possibility of being granted a small short term loan when you need it, at rates that are much lower than a payday loan.
You will find that some credit unions offer free financial counselling if you are experiencing difficulties, and they also offer a savings plan that should allow you to get a bit of money behind you, and might even allow you to qualify for a larger loan through the credit union at some point.
A payday loan from your employer
If you need to borrow some money for a financial emergency and can pay it back from your wages when you next get paid, it makes more sense to approach to your employer rather than go to a payday lender.
Some employers definitely do agree to provide advances on your salary and because this is an advance on money you are due to be paid rather than a loan, there should be no interest to pay.
It is not ideal to start taking money from your next wages payment and if you find yourself needing this help on a regular basis, you should take a good look at your finances to see what you can change.
If you do need an advance until payday, there is no doubt that if your employer does agree to provide this facility, it is a much cheaper option than going to a payday lender.
If you do need to borrow some money, explore the options available, such as short term loans, “credit repair” credit cards or credit union loans, as these should save you a fair amount of interest and therefore allow you to hopefully get your finances back on track faster than you first thought.
Nicholas Krauspe is the Head of Operations at MoneyBoat.co.uk, a London based alternative finance company providing unsecured consumer credit to residents of the UK. Nicholas has over 10 years of operations and management experience in the consumer finance sector.