Money Insider: How to avoid the clutches of payday lenders
Saturday 31 May 2014
A low credit score doesn't mean a payday loan is your only option. Despite ongoing threats of a clampdown on high-cost consumer credit, we are still bombarded by payday loan adverts.
The message the Government should be shouting from the rooftops is that just because your credit record isn't perfect, you don't have to face crippling four-figure payday rates. The powers that be need to let people know there are a number of cheaper and credible alternatives.
Specialist credit cards
Mainstream providers will turn you down flat if your record shows you've missed a couple of payments or have a County Court Judgment against you, even if it's from a few years back, but there are specialist credit cards that give you the chance to rebuild your record. Cards from Luma, Aqua, Capital One and Tesco Bank offer a genuine opportunity for borrowers to prove their creditworthiness.
The interest rates are higher than for standard credit cards but far cheaper than payday loans, with Tesco Bank charging a representative APR of 28.9 per cent on its new Foundation Credit Card whilst Luma and Aqua both advertise 35.9 per cent APR.
For example, borrowing £400 on a credit card at 28.9 per cent APR will cost you £9.63 in interest for one month, whereas the same sum borrowed from Wonga will set you back more than 13 times as much at £127.15 at a representative APR of 5,853 per cent.
If you borrowed £1,000 over 12 months from Luma at 35.9 per cent APR, your repayments would be £100.41 a month and you'd pay back £1,204.92 – i.e. an interest charge of £204.92 in a year.
To rebuild your credit status, you need to demonstrate a history of using a credit card in a responsible manner, so if you use the card and make payments on time every month then, over time, your credit score will improve.
Another cost-effective option is a guarantor loan with respected provider Amigo, offering credit of between £500 and £5,000 at a representative APR of 49.9 per cent.
To qualify for an Amigo loan, you need a creditworthy friend or relative to act as guarantor for your loan. This means that if for some reason you are unable to pay, the guarantor becomes liable for the outstanding balance.
The interest rate is far cheaper than a payday loan, plus Amigo loans offer flexible terms, including the option to make additional ad hoc overpayments without a penalty.
There are more than 1 million members in 380 credit unions. These local financial co-operatives, owned by the people who use them, offer guidance and help you try to regain control of your finances.
They will encourage you to save money, but they also offer loans at affordable rates too.
Although you're unlikely to be able to borrow more than £1,000 until you've proved your ability to save, it's an excellent way to manage your money if you're shut out by mainstream banks.
Some credit unions also offer a current account that comes with a Visa debit card with ATM access, or prepaid cards that can have your savings or loans loaded on to them for you to use at ATMs and in shops in the usual way. To find a local credit union, visit www.findyourcreditunion.co.uk or call 0161 832 3694.
Many credit union loans will cost you no more than 1 per cent per month (12.7 per cent APR) on the reducing balance of the loan.
If your finances are already squeezed a high interest payday loan could land you in a much bigger financial mess, so look at the more affordable options first.
Andrew Hagger is an independent personal finance analyst from www.moneycomms.co.uk
- 1 I've been called an abusive and dangerous parent, when all I did was listen to my transgender child
- 2 Migrant crisis: Greek soldier saved 20 people singlehandedly off Rhodes beach
- 3 Sofyen Belamouadden murder: The inside story of a crime that horrified Britain
- 4 Company breaks open Apple Watch to discover what it says is 'planned obsolescence'
- 5 UK weather: Britain braced for snow to replace sun as arctic air mass moves in
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband
The sickening truth about food banks that the Tories don't want you to know
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
General Election 2015: Britain would become a 'communist dictatorship' under Ed Miliband and Nicola Sturgeon, claims wife of Michael Gove
iJobs Money & Business
£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...
£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...
£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...
Day In a Page
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace