Payday Loans – Are there alternatives?
In terms of borrowing money in 2014, there is one phrase that crops up a lot more than most. You see them advertised on the TV, with fluffy elderly puppets or people who look like they could live down the road. The companies that offer them sponsor everything from football teams to double-decker buses. In this day and age, the payday loan is very much a sign of the times.
Borrowing money quickly may seem like the perfect solution to your existing financial problems, or even a way of sidestepping them before they even reach your door. With more and more people finding themselves in difficulty, the question that needs to be asked is whether there is an alternative.
The most high profile option available comes from an unlikely source. In a kneejerk reaction to the damage he saw payday loans causing across the country, Justin Welby – the Archbishop of Canterbury, no less – announced recently he intends to tackle them head on. Instead of lobbying against them, he recognised why they were being used. His proposal to drive community-run credit unions is one that has received a lot of plaudits from the national press.
Credit unions usually specialise in providing loans to people with low incomes that find themselves in financial difficulties. They are seen as an alternative to banks, loans and payday lenders and they cap the borrowing at 3 per cent a month. This low cap on borrowing means that they are usually quite selective as to who they lend to. Payday lenders, on the other hand, benefit from their huge interest rates and have very little need to give people’s credit history stringent checks.
Another alternative would be to choose a community development finance institution (CDFI). They are more commonly used by people or businesses that have difficulty attaining loans from the high street due to previous credit problems. Generally speaking, CDFIs offer much cheaper interest rates that payday lenders but have more leeway than credit unions. They do not have to abide by the same strict rules as unions and as a result will be prepared to take greater risks with who they lend money to. To ensure a more structured payment plan, 26 weeks is the shortest amount of time they will loan money for, but will offer anything as little as £100 for their customers.
The key to their success is raising awareness. Credit Unions and CDFIs struggle to compete with companies like Wonga, who boast marketing budgets in excess of £10m. It is this reason that payday lenders receive so much business. They are presented as the easy option and sometimes as the only option. This is not the case.
As with any loan, it is vital you are informed before you make a decision. With so many options, it is often difficult to know option suits you the best. If you feel in doubt about which route to take, contact CTA today for expert advice that is tailored to your needs.