The better alternatives to very high cost loans

It’s become harder to get a payday loan and other high cost credit as many lenders have gone bust because of affordability complaints or stopped lending because of Covid-19.

So where can you go if you need a loan and you know you will be refused?

Or if you realise that there is no way you can afford very high interest rates, or more. That these loans will lead you deeper into unaffordable debt?

Get a loan from a non payday lender?

You can divide alternatives to payday and  lenders roughly into three sorts

The good – ethical lenders

Even if you haven’t got a great credit record, it may still be possible to get credit from a local credit union or ethical lending initiatives. They tend to adopt a more personal approach, rather than “computer says no”. Many are small and local. others depend on the industry you work in:

• Find your local credit union here.
• TransaveUK is a credit union for workers in the following sectors: Transport and Storage, Health and Social Care, Engineering, Manufacturing, Cleaning and Waste Disposal. It offers loans with an average APR of 24%
• to buy white goods, look at Fair For You which allows you to pay weekly. The basic price of the item is not a rip-off and the delivery and other costs are a lot lower than “rent to own” shops.
• check Finding Finance for other possible lenders by saying what you want to borrow and your postcode.

Many “ethical” loans aren’t cheap. Without a good credit record, no-one is going to lend you money at 10% interest…

But they are a lot less expensive than payday loans.

And they are usually nicer to deal with than the large high-cost commercial lenders and guarantor lenders who can be very quick to offer you top-ups you can’t afford and very aggressive if you get into trouble.

The bad – other high-cost lending

Guarantor loans such as Amigo can too easily turn into a nightmare and make it much harder to deal with your debts in the future as you will be desperate to protect your guarantor. As a debt adviser, I would far rather see a client with payday loans than guarantor loans!

Here are what some people have said about guarantor loans:

• The loan was originally for £5,000 then a few years later topped up to £7,000. Honestly the worst decision I’ve ever made.
•  feel I’ve spent every single penny I’ve ever had on this loan worst idea I’ve ever had!
• basically biggest mistake I have ever made in my life.

Also to be avoided are the high-cost commercial lenders such as 118 money, Everyday Loans and Likely Loans. People often use these to try to consolidate payday loans – but at 40-99% interest rates, these large loans over years trap you into long-term unaffordable debt.

And I have seen people trapped into borrowing from Morses, Provident and other doorstep lenders for five, ten or more years… at interest rates of hundreds of per cent.

Consolidating debt may make sense at a low interest rate – less than 10% say.

But getting an expensive loan usually runs into big trouble – 49% may sound a lot cheaper than your current payday loans or 118 but paying that much for years can still be a disaster.

So if you already have bad credit, consolidation rarely works. Instead talk to a debt adviser.

And the terrifying

This is illegal money lending – often called loan sharks.

The man at the corner shop, the new friend on social media, the woman in the school playground…

They may sound friendly, easy and flexible when they offer to help you out with paying a big bill or covering new school uniform costs. But you have no protection at all with these unregulated and illegal lenders. Miss a payment and you may find the money you owe doubles.

If you have already borrowed from one, you are the victim, you haven’t committed a crime. You can safely report a loan shark and get practical help and support by phoning 0300 555 2222.

Interest-free help?

From benefits

When Universal Credit or Housing Benefit doesn’t cover your full rent, you may be able to get a Discretionary Housing Payment from your local council. Your local Citizens Advice can help you apply for this and can also check if you are getting all the other benefits you are entitled to.

If you have been on Universal Credit for 6 months, you may be able to get a Budgeting Advance. For older benefits such as ESA or Income Support for six months, apply for an interest-free budgeting loan – fill out the form here to apply.

In the five week wait until you get Universal Credit, ask for an Advance Payment. This is an interest-free loan that is later deducted when your UC starts being paid.

If your Universal Credit or other benefits have been sanctioned, you can apply for a Hardship Payment at your Job Centre.

Local Welfare Assistance Schemes are run by your local council. These can sometimes help families on benefits, low incomes or waiting for a benefits decision/appeal. You may be able to get vouchers to pay for food, fuel or clothing. Or for bigger basic living items such as beds, cookers and fridges. You can’t usually get cash. Contact your local council and ask if there is any help available.

Loan from your family

Work out what you can really afford to repay, don’t be too optimistic about this, and suggest that you set up a Standing Order to repay them. Obviously don’t think of borrowing from your mum if she is struggling to manage on her pension!

Don’t ask someone to take a loan for you. And NEVER EVER ask someone to guarantee a loan for you. You are in a big mess, but don’t make it worse by dragging someone else into the mess with you.

Foodbank vouchers

You can ask your local Citizens Advice, a GP, Social Worker or a Children’s Centre for a foodbank voucher.

Help for students

If you are a student, talk to your college/uni about whether you can get a hardship grant. Payday loans are a disaster for students who have no chance of repaying them and not having to borrow again.

There are some payday lenders that deliberately target students. But they are just as difficult to deal with, don’t be fooled that they are student-friendly just because their website mentions how hard life is as a student.

Find a way to avoid borrowing

Postpone the fun stuff

High-cost credit is sometimes advertised as a good way to pay for Christmas or holidays. But these need to be paid for from your income each month, not by getting loans.

If you get a three-year loan to pay for a holiday this year, what are you going to do next year when you are still paying for the previous holiday?

Borrowing only makes sense for large items that are essential. Everything else you need to save up for.

Boring? Well perhaps, but you know it makes sense…

Struggling with payday loans and other high-cost credit turns out to be very stressful. That’s a lot worse than boring. You are caught in a trap where large amounts of your income is going in interest repayments each month, so you can afford even less.

Look at cheaper alternatives such as having a holiday at home. Keep that old car for another year. Don’t upgrade your mobile contract, switch to a SIM-only for a year or two.

End the debt cycle by taking debt advice

Borrowing more money to repay another debt means your debts are getting bigger and harder to tackle every time. You need to stop this cycle of endless borrowing!

You do have alternatives, they may not seem nice but borrowing more is only making things worse.

With a payday loan that you can’t pay without needing to borrow again, phone the lender up and ask to arrange an affordable repayment plan. They aren’t allowed to keep on adding huge interest and other charges because there is a legal limit – called the payday loan cap – which says you can never pay more in interest than the amount you borrowed.

If you have other sorts of debt, could you manage them if the interest was frozen? Read how debt management can help.

A debt adviser can help you look at all your options. Call National Debtline on 0808 808 4000 for advice on what you should do. This is free, confidential and non-judgemental.

Make an affordability complaint

If some of the credit you have had in the past is “unaffordable” then you can complain to the lender and ask for a refund of the interest you paid.

The regulator says that credit is only affordable if you can repay it and still have enough money to pay your other debts, bills and everyday living costs. So if you have been borrowing more because making debt repayments has left you with too little to manage, then this is unaffordable.

How you complain depends on the type of credit you are complaining about:

• payday loans and running account facilities like Safetynet Credit and Drafty;
• overdrafts;
• guarantor loans;
• doorstep lending;
• large bad credit loans such as 118, Likely Loans and Everyday Loans. That page also covers expensive car finance such as MoneyBarn;
• credit cards and catalogues where your credit limit was too high.

These complaints can take a long while as many lenders just say No, even to good cases, so they have to go to the Ombudsman. So think about getting yourself into a safe financial position while the complaints go through by getting a debt management plan. If you win the complaints negative information is removed from your credit record and your DMP will finish much sooner!