Money Insider: Play cards right to end payday loan misery
Friday 01 February 2013
There are a growing number of credit cards on the market designed to steer some consumers back towards mainstream credit and away from the clutches of payday lenders.
Since the onset of the credit crunch, many people have seen their credit score damaged, often as a result of unemployment and circumstances beyond their control.
Those fortunate enough to have a job have seen little if any increase in pay over the last four years while soaring living costs continue to take a hefty bite out of any disposable income.
The upshot is that there are now many more people with a less-than-perfect credit score, which means they are often not eligible to borrow from banks and building societies.
Even though the best buy tables are littered with 0 per cent credit-card deals for 24 months-plus and personal loan rates at a ten-year low, unless you have a near-perfect credit history, you'll be wasting your time applying.
But put yourself in the position of someone who used to borrow from the big names on the high street but, since falling into arrears while out of work, suddenly finds they are no longer able to obtain credit from this source.
Where do you turn?
Despite there being a growing number of credit unions across the UK, it is the payday and doorstep lenders with aggressive high-profile advertising campaigns and a growing high street presence to which more and more people are turning – and paying a heavy price for their borrowing.
The only real way to get out of this situation is to take steps to repair your credit record and that's where the credit cards with a 35 per cent plus APR come in.
Most credit-card companies will turn you down flat if you've got a history of missed and late credit payments or a County Court Judgement.
However, specialist credit cards from Luma (powered by Capital One), Aqua and Vanquis enable UK customers who have struggled with debt previously or who have a limited credit history in the UK to apply for its plastic and give them a genuine chance to turn things round.
The interest rates are well below those charged for short-term payday loans with Vanquis charging a representative APR of 39.9 per cent, Luma 35.9 per cent and Aqua 34.9 per cent APR.
Borrowing £400 on a credit card at 39.9 per cent APR will cost you £13.55 in interest for one month, whereas the same sum borrowed from Wonga will set you back £125.48 in interest and fees at a representative APR of 4,214 per cent.
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, your credit score will get better over time.
If you repay the statement balance in full each month, then even better as you'll be improving your credit score without paying any interest charges in the process.
Rebuilding your credit rating will never have a quick fix but this is a real chance to prove that you are financially responsible, and in time could give you the ability to borrow once again at the prime interest rates offered by banks and building societies.
I'm not suggesting that borrowing at 35 per cent to 40 per cent APR is an ideal situation, but when your options are limited, it looks a hundred times better than potential payday loan hell.
NS&i and Coventry in a welcome pledge on ISA interest rates
It's a longstanding gripe that new customers are tempted to put their cash into a best buy savings deal, only to find that 12 months later the rate gets slashed to next to nothing.
However, two providers have just announced plans to do away with dual pricing, and will offer all ISA customers a decent deal.
National Savings & Investments (NS&I) says that from 25 May customers in old T Cash and Cash ISA products paying a miserly 0.5 per cent will be switched to the NS&I Direct ISA paying 2.25 per cent.
Coventry Building Society, meanwhile, says that from 6 April all its ISA customers will receive a variable interest rate of 2.5 per cent.
Andrew Hagger is a personal finance analyst at moneycomms.co.uk
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Notting Hill Carnival: Woman shares selfie after being ‘punched in face for telling man to stop groping her’
- 2 Keira Knightley topless: Conservative actress does own take on #Freethenipple campaign for Interview Magazine
- 3 Argentina may change its capital city from Buenos Aires, says president
- 4 The 3D-printed key that can unlock anything
- 5 Lady al-Qa’ida: On the trail of Dr Aafia Siddiqui, the world’s most wanted prisoner
Robin Williams Emmys tribute led by Billy Crystal criticised for including 'racist' joke about Muslim woman
The Rotherham child abuse scandal is a tale of apologists, misogyny and double standards
What do immigrants really think of Britain? Polish immigrant's Reddit post goes viral
Scottish independence TV debate: Pumped-up Alex Salmond bounces back in bruising second round against Alistair Darling
Do you realise just how foolish the UK looks?
With Douglas Carswell joining Ukip, my party has taken another giant step forward
- < Previous
- Next >
iJobs Money & Business
Highly Attractive Salary: Austen Lloyd: BRISTOL - This is a very unusual law c...
£35000 per annum: Harrington Starr: Network Engineer (CCNP, CCNA, Linux, OSPF,...
£50000 per annum: Harrington Starr: DevOps Engineer (Systems Administration, L...
£60000 - £70000 per annum: Harrington Starr: A prestigious leading professiona...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony