Alternatives to Pay Day Loans

The Differences between Payday Loans, Credit Cards and Guarantor Loans or Unsecured Personal Loans

In this article we will take a look at the different ways of borrowing money in today’s society, with the emphasis on payday loans and unsecured personal loans.

There are numerous ways in which you can borrow money, and of course the most popular are standard bank loans however, many people have experienced tough financial times and as a result have ended up with a less than satisfactory credit rating. This then cuts down the options available, leaving; borrowing from a relative or loved one, using your credit card (if you haven’t already exhausted that option) or a loan from a short to mid-term lender.

Borrowing Money from Friends or Family

Borrowing from a loved one always has its issues, whether from pressure on the relationship itself to making timely repayments. Sadly we have all either experienced ourselves, or heard stories of friends lending money and it not being paid back, and because there was no legally binding agreement between the two parties, there is not much that can be done to recover the outstanding amounts.

Paying Off Debt Using Credit Cards

The next option available can be to use the limit on a credit card to cover the amount needed to be borrowed. This works when you don’t know the amount you need until the moment you need it, and when the amount is small enough to be covered by the card credit limit. The money can then be repaid over a period of months along with the monthly fees, until the debt is cleared.

If you have the option, you can always transfer the amount on an existing card to a new card provider with a lower rate of interest and a 0% balance transfer fee. The consumer comparison site ‘Which’ has a list of the latest credit cards with a 0% balance transfers, featuring the Saga Platinum Card being the best lending deal, followed closely by the Partnership Card from John Lewis and Waitrose.

Pay Day Loans

Pay day loans are a way of paying off a small amount of debt when you know the amount you need to borrow, and you know that you can afford to pay back the full amount on pay day.

This is often the chosen option if you nee the cash immediately and you are confident that you can afford to both live through the month, and repay the amount out of your next pay cheque.

Small but essential car repairs and vets bills can be a good example of when a pay day loan is appropriate. However, they are not appropriate when being used to repay existing debt or when a longer term of borrowing is required.

This type of loan is a short term loan which usually has a borrowing period of anywhere between 1 day and 6 months, dependent on the provider.

Wonga are a high profile loan provider that categorise themselves as a cash loan provider, an alternative to a payday loan. Their loans still have an APR of over 1500%, although the borrowing periods are far shorter than a personal loan or guarantor loan. They allow new customers to borrow between £50 and £400 for a period of between 1 day and 39 days, and they do allow the customer to repay the debt early with no early repayment fees, which in turn will save the customer from paying the interest.

The Wonga website representative example is: Amount of credit: £100 for 13 days. One total repayment of £110.40. Interest £10.40. Interest Rate 292% pa (fixed) Representative 1,509% APR.

QuickQuid are another leading pay day loan provider that specialise in short term loans and they do offer new customers a higher amount of credit. They can offer up to £1,000 provided the customer fits the affordability criteria.

The QuickQuid website representative example is: Amount of credit: £100 for 30 days. One total repayment of £124.00. Interest: £24.00. Interest rate: 292% pa (fixed). Representative 1,270% APR.

The Government recently capped the fees that a pay day lender can charge customers by applying the following three rules:

  • Lenders can only charge 80p interest per £100 per day. So, if £100 is borrowed for 30 days, the interest should be no more than £24
  • Lenders can’t charge more than £15 as a late payment fee
  • The customer will never pay back more than double the amount borrowed. So, if £100 is borrowed, the customer will never pay back more than £200 when all interest, fees and charges are taken into account

For more information on pay day loan providers visit The Money Saving Expert website.

Unsecured Personal Loans

Unsecured personal loans are way of securing a larger amount of credit than with a pay day loan where the repayments are agreed over a longer period of time. They are most commonly the right solution for those looking to secure between £1,000 and £7,500 and are looking to repay the loan over a period of between 1 and 5 years.

The interest rates are higher than with the traditional high street lenders, however most customers have usually been refused credit via the main stream routes so have few alternatives.

These sort of mid-term loans are appropriate for those who have a reasonable credit history but have possibly had a few minor late payments with existing credit cards or existing loans.

If you still have issues getting approved for a loan then you can still apply for an unsecured personal loan in the form of a guarantor loan.

Guarantor Loans

Guarantor loans are identical to an unsecured personal loan with the only difference being that the person applying for a loan has to find someone to financially vouch, or guarantee repayment of the loan for them. So if for any reason the repayments are not made as agreed by the customer, the lender can approach the guarantor to honour the repayments on the customer’s behalf.

George Banco is a UK based direct lender offering unsecured personal loans and guarantor loans for those who have been refused credit via mainstream lenders.

The George Banco website representative example is: Borrowing £3500 over 36 months, repaying £170.56 per month, total repayable £6140.16. Interest rate 31.9% (fixed). Representative 49.7% APR (fixed)

George Banco offers the unique Rate Dropper loan, where the APR reduces after year two, and again in year three if repayments are on time, which in turn helps rebuild credit histories and future financial stability.

For more information about unsecured personal loans or guarantor loans visit George Banco

If you are suffering financial problems then before applying for any form of loan you should first visit moneyadviceservice.org.uk for help and advice.