Money Insider: Play cards right to end payday loan misery

 

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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Life and Style
health
News
education
Life and Style
Steve Shaw shows Kate how to get wet behind the ears and how to align her neck
healthSteven Shaw - the 'Buddha of Breaststroke' - applies Alexander Technique to the watery sport
News
people
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: C# Project Team Lead

    £55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

    Guru Careers: Graduate Editor / Editorial Assistant

    £16 - 20k: Guru Careers: A Graduate Editor / Editorial Assistant is needed to ...

    Guru Careers: Software Developer / C# Developer

    £40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

    Neil Pavier: Management Accountant

    £45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

    Day In a Page

    Abuse - and the hell that came afterwards

    Abuse - and the hell that follows

    James Rhodes on the extraordinary legal battle to publish his memoir
    Why we need a 'tranquility map' of England, according to campaigners

    It's oh so quiet!

    The case for a 'tranquility map' of England
    'Timeless fashion': It may be a paradox, but the industry loves it

    'Timeless fashion'

    It may be a paradox, but the industry loves it
    If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

    Could have done with Osama bin Laden staying alive?

    Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
    New exhibition celebrates the evolution of swimwear

    Evolution of swimwear

    From bathing dresses in the twenties to modern bikinis
    Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

    Sun, sex and an anthropological study

    One academic’s summer of hell in Magaluf
    From Shakespeare to Rising Damp... to Vicious

    Frances de la Tour's 50-year triumph

    'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
    'That Whitsun, I was late getting away...'

    Ian McMillan on the Whitsun Weddings

    This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
    Kathryn Williams explores the works and influences of Sylvia Plath in a new light

    Songs from the bell jar

    Kathryn Williams explores the works and influences of Sylvia Plath
    How one man's day in high heels showed him that Cannes must change its 'no flats' policy

    One man's day in high heels

    ...showed him that Cannes must change its 'flats' policy
    Is a quiet crusade to reform executive pay bearing fruit?

    Is a quiet crusade to reform executive pay bearing fruit?

    Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
    The King David Hotel gives precious work to Palestinians - unless peace talks are on

    King David Hotel: Palestinians not included

    The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
    More people moving from Australia to New Zealand than in the other direction for first time in 24 years

    End of the Aussie brain drain

    More people moving from Australia to New Zealand than in the other direction for first time in 24 years
    Meditation is touted as a cure for mental instability but can it actually be bad for you?

    Can meditation be bad for you?

    Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
    Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

    Australia's first-ever Eurovision entrant

    Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine