Payday loans might have fallen out of the news, but a new vicious style of loan company has very quickly risen to take its place. The ‘medium-term loan market’, with APRs of well over 1000%, has skyrocketed in response to new measures introduced by the government to tackle payday loan companies.
The new legislation intended to target destructive money lenders who prey on people most in need of cash has worked, in a sense. Short-term loan companies are far more limited in their ability to lend a little and receive a lot. Not only is interest limited to 0.8% per day, but the total they can ask you to pay back is limited to double of what you originally borrowed.
As Wonga has demonstrated, however, this is not a death sentence. They have simply changed their business model to lend money over a more extended period of time.
This legislation has not worked. Last year 1.4 million low-income households opted for high-cost credit to cover their living costs. This number was 300,000 lower in 2016. The majority of these lenders were also in part-time or irregular work, leaving them in a disadvantaged position regarding repaying debts.
This technique of attempting to prey on people who are financially troubled is common amongst these companies. Oakam, for example, does a lot of its advertising on daytime television – targeting those who are not in work. Their advertisements even boast that they will lend to you if you are on benefits or a CCJ and the same is proudly boasted on their website.
This means that the ideal clients for these ruthless companies are significantly more likely to miss repayments and end up meeting charges and fees on top of the disgraceful interest you are already being forced to pay.
The legislation has given many people the entirely false impression that payday loans are safe and is now in line with other reasonable loans from banks and such. All of the following examples are still altogether legal, yet incredibly expensive and unfair nonetheless.
Even with the 0.8% cap, the sums involved in terms of repayment are ridiculous, even for someone relatively financially stable. From the loan company ‘Sunny’, borrowing £1500 for just seven months would mean seven monthly instalments of £379.85 for a total of £2659.01. That means you will spend £1159 extra in only seven months.
From Provident, borrowing £1000 for six months will mean you end up paying back £1560. That is an extra £560, almost £100 a month – and you are only borrowing £1000 in the first place! Changing your repayment period to a year increases this figure to £1872!
Where Should I Borrow From?
Just because there are hundreds of unethical and vicious loan companies out there does not change the fact that we still need to borrow. The question remains, then, where should we look to get money from when cash is tight, and we need some credit.
In response to companies like Wonga, who leave thousands of people in compromised financial positions every single year, many ‘ethical’ loan companies have started to pop up.
Moneyline, for example, offer massively reduced interest rates in relation to their competitors. If you were to take out a £500 loan, to be paid back over 26 weeks, you would repay £653.13 in total. Taking out the same loan from a competitor like Satsuma will cost you a ridiculous £948.
Based in Glasgow, Scotcash is a not-for-profit enterprise which offers reasonably priced loans to the public. Borrowing £500 for 26 weeks would cost you only £618.21 in repayments. Despite being based in Scotland, it is available to any UK resident outside of London.
Alternatively, you could research local credit unions in your area. These enterprises are controlled entirely by its own members, offering loan products which cannot have an APR which cannot be in excess of 42.6%. These member-owned financial cooperatives can be a very affordable method of borrowing, so search to see what is available in your area.
Payday Loans Aren’t Dead – Be Wary!
Despite the government legislation, payday loan companies are well and truly alive and kicking. As desperate as your situation might be, you should exhaust all other options before getting into bed with such vicious enterprises.
Even if you want to borrow over an extremely short amount of time, there is still an inherent danger. Many of our indebted clients discuss how they borrowed from a payday company while in a position to pay it back quickly, intent on avoiding significant costs. This is playing with fire. One change in circumstance, or another unexpected bill, could mean you miss your repayments and are suddenly facing unmanageable debt.
If you have fallen into debt to a payday loan company and need some assistance, don’t hesitate to get in touch with our team on 0800 808 5124. As desperate as your situation may seem, there is always something that can be done, and we help thousands of people gain back control of their finances every year.
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