Summary: This article explains what alternatives to a payday loan there may be available to those struggling to make ends meet at the end of the month.
A payday loan is a short term loan, usually for a smaller amount, that is designed to tide an individual over until they are paid. The intention is that they should be repaid usually within a month, and the charges are transparent. However, if the loan is not repaid on time, or it is rolled over, the charges and interest can rapidly increase, resulting in many not ever repaying the loan and getting further into debt.
Before considering a payday loan, it may be worthy considering what alternatives there may be. Please be aware that taking out a loan when in financial difficulty is not recommended and should be seen as a last resort. There may be alternatives such as setting up a budget and cutting back on non essentials. One of the free advice organisations, such as Step Change or the Citizens Advice Bureau may also be able to provide help. For those already in debt, a Debt Management Plan (DMP) or Individual Voluntary Arrangement (IVA) could be suitable solutions.
Getting an overdraft
It may be possible that the individuals bank could provide a small overdraft facility. There may be and administration charge to set this up, and there will be monthly interest charged until it is paid off, but the rates will be transplant and at a far more reasonable rate. It is possible for the facility to be withdrawn by the bank at any time, so it is important for a repayment plan to be in place.
Credit unions are generally not for profit organisations that can offer loans, as well as savings accounts and mortgage offerings as well. As they are not for profit, any profit they do make goes back into helping keep their rates lower for their customers. They may be able to offer a small loan at a far more reasonable rate than a pay day loan lender, and may also be able to lend to those previously declined by a bank.
For those on low incomes that are really struggling, it may be possible to obtain a budgeting loan to pay for food, rent essential furniture. The smallest amount that can be borrowed is £100, but it is an interest free loan provided by the government and is usually repaid over 104 weeks. It is only available to those on income-related benefits.
As has been previously stated, the ideal solution to financial difficulties is not to get into debt, or increase existing debt. It may be possible to cut back on non essential items and set up a budget. Taking out a loan should be considered a last resort.