The high cost payday loan industry continues to come under fire by the regulator and the press. The once very lucrative industry is showing signs of a demise, with high profile companies recently forced into administration including Wonga.com, The Money Shop and WageDayAdvance.
The recent exit of major firms has come as a recent of repercussions from the FCA’s price cap that was introduced in January 2015 and the result of thousands of compensation claims from borrowers who were sold loans out of their affordability. The result? A much more refined number of smaller lenders in the industry and the rise of brand new alternatives, as listed below.
Flexible overdrafts
New overdraft facilities have emerged allowing borrowers to access a few hundred pounds each month and top up or borrow more if they need. This is designed to offer more flexibility than the average payday loan and should appeal to those with different requirements each month. The interest remains competitive and is below the FCA price cap. It is currently offered by Draft, Stepstone Credit and Sunny.
Instalment loans
More and more payday lenders are moving away from the traditional 14 to 30-day product offer the alternative of instalment loans, repaid over longer periods of time, i.e 6, 12 or 24 months. This is entitled to give the customer more breathing space to pay off their immediate emergency and then repay their loan off over several months. Plus, they have the flexibility to repay early at any time if they want to and they will receive a rebate or reduction of overall interest since the loan is open for less time. This is currently offered by MY JAR, Uncle Buck and Cashfloat.
Guarantor products
For those looking for bad credit loans, a popular option is using a guarantor loan which has gained immense popularity in the last few years. The idea is that your loan is co-signed with another person that you know, such as a family member or close friend, and this extra person agrees to cover any missed repayments.
The guarantor must ideally have a good credit history and be a homeowner to maximise approval – and the whole approval process is based on the relationship between the borrower and guarantor. So if the main applicant has bad credit, this is usually allowed provided they have someone good to ‘back them up.’ See also bad credit options.
Borrowing from family and friends
One of the most common payday loan alternatives involves people asking their family and friends to borrow money – and now there are platforms online available to help you legitimise it. So if you are looking to borrow a few hundred pounds and wish to formalise it through a loan agreement and interest rates, there are sites that can assist.
However, if it is just a few pounds you are looking to borrow, this is typically very informal between friends and can usually be repaid on any date and may not be subject to interest.
Selling goods online
Whilst the average payday loan is usually around £250, similar sums of money can be obtained from selling household items. The likes of Depop and Shpock are being used by thousands of people in the UK to sell and buy unwanted items including clothes, furniture, CDs, books and more. Could you be sitting on a fortune? The idea of selling things you do not need any more through an app and still getting paid on the same day, can be faster and more effective than a payday loan.