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
Compare with the Independent: See how much you could save by switching credit cards. Compare now
Pensioners to be told how long they have left to live to help them plan their finances
Erudio Student Loans: Reader has cash wrongly taken from account by debt collector
Row goes on over deferred student loans
How to start your own internet business
The whole truth about legal fees: Conveyancing can knock a big hole in home-buyers' finances. To get the best deal you must cross-examine solicitors about their charges, says Sue Fieldman
- 1 Poveglia: 'World's most haunted island' up for sale...is anyone brave enough to buy it?
- 2 Babies cry at night to stop mothers procreating, scientists claim
- 3 24 people applied for the 'world's toughest job', here are their interviews
- 4 Andre Johnson: Wu-Tang Clan-discovered rapper severed his penis and jumped from LA building
- 5 Mrs Doubtfire 2: Robin Williams set to star in sequel to 1993 comedy
The food poverty scandal that shames Britain: Nearly 1m people rely on handouts to eat – and benefit reforms may be to blame
US Navy christens huge $3 billion destroyer ship USS Zumwalt that appears as a fishing boat on enemy radar
Scottish independence: It is the English who should be on their knees, begging the Scots to vote ‘No’
Nigel Farage fatigue? Half of voters ‘immune’ to Ukip’s appeal
Nigel Farage on Have I Got News For You: Ukip leader ridiculed over expenses and party 'fruitcakes'
Nigel Farage: I’m taking on the status quo, and the Establishment’s fighting back
iJobs Money & Business
£150.00 per week: QA Apprenticeships: This company has been providing on site ...
£221.25 per week: QA Apprenticeships: This company is a well established Inter...
£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...
£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...
Day In a Page
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
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds