The spotlight has been on payday loan providers recently, thanks to criticisms from the government and media, about the irresponsibly high interest rates they set on repayments. Payday loan providers have a reputation for targeting the most vulnerable and also come under criticism for rolling over loans to loans customers several times, effectively trapping them with severe financial problems.
If you're looking to take out a payday loan, it's likely that more conventional forms of borrowing, such as personal loans and credit cards, are unavailable to you. However, there are a few other sources of financial aid you can turn to.
Credit Union Loan
Credit union loans are regarded as the ideal alternative to payday loans. There are many types of credit union, and you may be eligible to apply if you work in a particular industry, are a member of certain organisations, or even if you just live in a specific location.
It may be necessary to have invested some money in a credit union at some point, but this is not the case with all of them, so thoroughly research credit unions in regards to your circumstances.
Like with a loan, you'll have to fill in an application which meets a set of criteria before you are lent the cash, but many people who have been refused help by banks and building societies can actually achieve help from credit unions, so don't let this put you off.
The terms will vary depending on the source of the loan, but the terms will be far more favourable than that of a payday loan provider.
Social Fund Budgeting Loan
If you've been claiming benefits for more than 26 weeks or more you can apply for a budgeting loan, which is a scheme operated by the Department of Work and Pensions (DWP). It's an interest free loan, but only available to use for specific purposes.
Employer Cash Advance
It's always worth keeping a good relationship with your employer. Some people may be too embarrassed to ask for a wage advance, but finances get tight for everyone at times, and there's no shame in asking for help. Depending of course on the nature of your employment, and your employer’s generosity, you may be able to have the money deducted from future pay-checks over a number a months to spread the burden, or your employer might even offer you some overtime to help out. Regardless, any advance should be interest free, and prioritised above resorting to a payday loan.
If you've not already been refused an overdraft by your bank, you should be wary about using one. Recent research has indicated that when used inappropriately, bank overdraft charges can amount to a similar level of cost as a payday loan. Whilst the charges are considerably less than with an unauthorised overdraft, you would be better off considering other options, or at least calculating in advance, how quickly you can get back in the black, and how much in overdraft charges you're going to end up paying in total.Image: © Nyul | Dreamstime.com