Published on July 3rd, 2014 | by FinanceLoophole0
Alternatives to payday loan companies
There are plenty of payday loan companies out there. The big ones like Wonga, Peachy, Quickquid have a lot of customers many of whom have on-going debt problems. Recently there has been a great deal of controversy about Payday lenders and in particular Wonga – the UK’s largest payday lender which has agreed to pay £2.6m in compensation for sending threatening letters to customers from non-existent law firms. Wonga says that this practice is firmly in its past and that, “all the people directly involved… are no longer with the business”.
“People want payday loans, but then people want crack cocaine”
“People want payday loans, but then people want crack cocaine. It doesn’t make it a good thing to do.” Fiach Maguire, head of marketing for My Community Bank doesn’t hold back on his words. it is a comment that many will agree with, but what are the alternatives to Payday Loans?
The need for some form of short term loan system for people to pay off and manage their short term debt needs is clearly required or people would not use the payday loans companies. The Church of England has said that it will out compete payday loan companies by supporting community-run credit unions.
Debt management and Credit Unions
Credit unions have traditionally specialised in providing loans and savings products to poorer people, and are seen as offering an alternative to banks, payday lenders and loan sharks. The cost of borrowing is capped at 3% a month and members have to share a “common bond”, although organisations have found inventive ways around this antiquated rule. One problem they do have is that people need to be in the credit union and paying into it before they require a loan. This is not very useful to those who are not already in credit union before they fall on hard times and require a loan to pay off their debts. In addition credit unions have to be selective about who they can loan to because they have capped interest rate and are less well able to cope with bad debts than the payday loan companies with their sky high interest rates. As a result they only lend to people they know are likely to pay them back. This clearly leaves a big gap in the market between responsible lenders and payday loan companies.
Education is another issue holding back people going to the more socially aware lenders like credit unions. Wonga has an advertising budget of £10m a year and their slick marketing has a much greater impact than the low impact marketing available to credit unions with their limited budgets. To help overcome peoples reliance on payday lenders it would be great to see more education about personal finance in schools.
There are new players in the finance marketplace who do offer considerably lower interest rates on loans around 48% APR compared to the more well-known players like Wonga with their massive 5853% PAR interest rates so its well worth doing your research.
If you are having problems paying back your debt resulting from taking out a payday loan do not panic there is help out there, ranging from free advice to professional debt management companies. Remeber – don’t let them bully you into further debt.