Better Alternatives To Payday Loans
The fridge has packed up; the vacuum cleaner has died; your car must have new tyres – and you need to raise money, and quick. You’re fortunate to have the choice of many options, as long as you’re aware that not all ways methods of borrowing are equal. Payday Loans in particular are – rightly – having a lot of bad press at the moment, though the fact remains that everyone struggles sometime and easy access to a loan is a lifeline in some circumstances.
Here we’re going to take a look at some of the borrowing alternatives to Payday Loans that are open to you.
1. An advance from your employer
If you have a sympathetic employer and you aren’t that far from payday, you could ask your employer for an advance on your pay. This is often referred to as an advance of wages. You’ll receive an agreed amount of your wages to help you through your emergency, which will be deducted from your wages on payday. Your employer might not be able to give you anything, but there’s no harm in asking if it means you avoid having to pursue a loan that could get you into real difficulty.
2. Join a Credit Union
A Credit Union is a community savings and loans group. Members can – you guessed it – save money and apply for secured and unsecured loans, which can be paid back over a longer period than Payday Loans, sometimes up to 10 years. The number of Credit Unions is on the up and the services and interest rates they offer vary. It’s worth checking if there is one in your area and seeing if you can apply for membership or a fixed rate loan before you resort to a Payday Loan.
3. Extend your overdraft
If you think you might run into difficulty before your next wages are paid, it could be worth discussing an extension of your overdraft with the bank. Extending your agreed overdraft will give you a safety net, while helping you to avoid fees for going over your limit. Overdrafts are often agreed for up to 12 months. The downside is that you will be charged, though this may not be as much as a Payday Loan and will vary from bank to bank.
4. Free vehicle equity with a Logbook Loan
A Logbook Loan gives you access to funds quickly (within hours) but unlike a Payday Loan you are releasing the equity from the value of your car, which you can keep driving as you pay back the loan. Interest rates are generally much lower than a Payday Loan – for example Auto Advance’s representative APR is 300.30% compared to to Payday lenders like Wonga (5,853.00%) or QuickQuid (1,999.00%). The lower rates of interest and guarantees of no unexpected fees make them a safer alternative to a Payday Loan, as the amount of money you owe won’t suddenly spiral out of control.
5. Other secured/unsecured borrowing
A secured (homeowner) loan or an unsecured loan from the bank will require credit checks to ensure you are eligible. If you have a poor credit rating, you might be charged a higher rate of interest because of the risk of lending to you. Also a credit check is usually required and approval may take longer – it’s less of a “quick cash” option. However, it has its advantages: the loan can be taken out for a longer period and attracts a lower APR than a Payday Loan.
6. Get free financial advice
If the last thing you need to get you out of a financial emergency is a high interest Payday Loan, a viable option in your toolkit is advice. There are a number of independent organisations and charities you can talk about money worries and get practical help, like The Money Advice Service and StepChange (CCCS).
For other advice to help make your money go further, read the tips in 12 ways to have more money in 2015.