There are approximately 3 million in the UK that rely on payday loans each year, however following an industry shake-up and a rise in complaints, customers with adverse credit histories have started to turn their attention to new financial alternatives.
Payday loans rose to fame following the financial credit crunch and the banks unwillingness to lend to consumers. Several payday loan firms emerged post-2010 and many benefited from Israeli innovation and technology including Wonga, Uncle Buck and Cash Lady.
However, the introduction of the FCA in 2014 has added stricter regulation to the industry and recently, there has been a significant rise in compensation claims for mis-sold payday loans. Specifically, market-leader Wonga has had to refund over £220 million worth of loans and is no longer accepting applications, slowly followed by another sizeable lender in The Money Shop.
With complaints for the payday loans industry continuing to mount, customers looking to borrow small amounts until their next payday are looking for viable alternatives, despite having adverse credit histories.
Borrowing from family and friends has traditionally been one of the most popular ones of obtaining short-term much needed finance – and it is making a comeback. The process of asking Mum and Dad for money is very practical, given the difficulty with getting on the property ladder and many relying on parents for their first deposit.
However, this transcends to borrowing small amounts too, with websites such as Zimple Money and Loan Back providing services that allow family and friends to draw up contracts and basic terms to make the process go smoother.
Credit cards have always been a common way of borrowing money on tap and this can replace the need for payday loans if used correctly. If you have a medium to a good credit score, you are able to use a zero percent credit card and will pay nothing at all provided that you can pay it in full at the end of the month – much like a payday loan but without the interest.
If you have poor credit, you can find a specific credit card that offers zero percent for the first month, but then charges a much higher percentage thereafter, moving from the average of 18% to 35%. Thereby rewarding those that are creditworthy and able to clear their accounts sooner rather than later.
If you are on government benefits and need money for necessities such as food and white goods, you may be eligible for a budgeting loan from the government which can give you a lump sum of £812 which is interest-free.
Finally, if you work in the public sector such as a nurse, teacher, street worker or council worker, you could be eligible to borrow from a credit union. This refers to non-profit organisations that are typically set up by a group of members in the local area, such as churches or community workers. Customers can borrow a few hundred pounds, like payday loan products, with very low interest of 26% APR and no default fees. The only issue is that loans can take a few days or weeks to be approved and transferred to your account.