Need a top-up?

Where to go when you’re in need of a loan

The Guardian - - NEWS -

If you were hav­ing a bad spell fi­nan­cially and ur­gently needed £250 for a short pe­riod, where would you go?

In re­cent years, mil­lions of peo­ple have turned to pay­day loans to help pay their rent or mort­gage, deal with an un­ex­pected emer­gency or even af­ford their weekly food shop.

But now Wonga has gone, and this week it emerged that the com­pany’s big­gest sur­viv­ing ri­val faces a mul­ti­mil­lion-pound bill af­ter be­ing hit with a del­uge of com­plaints.

Pay­day lenders of­ten ar­gue they pro­vide a vi­tal ser­vice to those who would oth­er­wise strug­gle to ac­cess credit – but some of those need­ing a quick shot of cash may have bet­ter op­tions, such as get­ting help from fam­ily or friends, ask­ing their em­ployer for an ad­vance, speak­ing to their bank about an over­draft or bor­row­ing from a credit union.

Mean­while, as the Money Ad­vice Ser­vice points out, if you don’t have the cash you need un­til pay­day, a credit card can give you some ex­tra wrig­gle room – but, of course, if you don’t clear your debt at the end of each month, you will usu­ally have to pay in­ter­est on your out­stand­ing bal­ance, and that can re­ally rack up.

Ear­lier this month, a short-term lender called Cred­it­spring launched of­fer­ing a novel con­cept: you pay a mem­ber­ship fee and get ac­cess to in­ter­est-free loans.

So if need to bor­row that £250 for a month, what are your choices, as­sum­ing that other op­tions such as a hand­out from fam­ily or friends isn’t forth­com­ing? • An au­tho­rised over­draft These are de­signed for short-term bor­row­ing, but costs vary hugely. Some banks have daily fees, some have monthly fees, some charge in­ter­est, and some use a combination of these.

Bor­row­ing £250 on an au­tho­rised over­draft over 31 days would cost a Bar­clays stan­dard ac­count holder

£23.25 (31 lots of 75p a day), while for a stan­dard Hal­i­fax cus­tomer it is £11.15 (a daily fee of 1p for ev­ery £7 you bor­row). With Na­tion­wide’s FlexAc­count it's £3.70 in in­ter­est.

Need­less to say, go­ing over­drawn with­out per­mis­sion can be hideously costly. For ex­am­ple, in the above au­tho­rised sce­nario, TSB would charge £9.31 (£3.31 in­ter­est and £6 monthly us­age fee) – but if it was unau­tho­rised, it would be £80 (TSB’s max­i­mum monthly charge). • Credit unions These have long been touted as a vi­tal al­ter­na­tive to pay­day lenders, and can of­fer a very good deal for peo­ple bor­row­ing smaller amounts. The max­i­mum they are al­lowed to charge is 3% a month on the re­duc­ing bal­ance – an APR of 42.6%.

If you bor­rowed £250 from Lon­don Mu­tual Credit Union for a month, you would pay back £257.50 – that is, £7.50 in­ter­est. If you bor­rowed £250 for two months, you would pay back two lots of £130.65 – that is, £11.30 in­ter­est. At Leeds Credit Union it is a sim­i­lar story: pay £4.65 or £7.50 for a £250 loan for one month, or £8.41 or £11.30 over two months.

But anec­do­tal ev­i­dence sug­gests it is not al­ways easy to quickly join a credit union and get cash fast: some will re­quire you to build up some sav­ings first. • Cred­it­spring The lender went live this month and claims to of­fer a new way to deal with un­ex­pected ex­penses. Peo­ple pay a mem­ber­ship fee and can then bor­row £250 up to twice a year at 0% in­ter­est. Each £250 ad­vance is paid back in four monthly in­stal­ments of £62.50, along with a £6 monthly fee. But that means the to­tal cost of credit is £72 (a rep­re­sen­ta­tive APR of 87.4%, says the web­site). Some may feel that is a lot to shell out for just £250 or £500. In ad­di­tion, Cred­it­spring is lim­ited to those with an an­nual in­come of £20,000-plus, and you have to be a mem­ber for 14 days be­fore you can draw your first ad­vance. • Pay­day lenders Wonga may now be an ex-lender, but there are plenty of other pay­day firms still ply­ing for trade.

If you took out a £250 loan for one month from Quick­Quid, now ar­guably the UK’s big­gest pay­day lender, it would charge £60 in­ter­est – that is, the to­tal you would re­pay is £310. If you bor­rowed £250 for two months, you would pay

£120 in­ter­est. A num­ber of other pay­day lenders would also charge £60 for that £250 for one month. Peachy said it would charge £58.

Pay­day loan price com­par­i­son web­sites, such as Allthe­len­ders, al­low you to com­pare deals. • Other lenders There are al­ter­na­tives – so­cial en­ter­prises such as Fair Fi­nance, which has sev­eral branches in Lon­don, doesn’t quite fit the above sce­nario as its min­i­mum loan pe­riod is six months. Its web­site sug­gests some­one bor­row­ing £250 over that pe­riod would pay about £100 (made up of £70 in­ter­est and an ad­min­is­tra­tion fee of £30), giv­ing a to­tal to re­pay of £350 (this as­sumes monthly re­pay­ments).

Its head­line quoted rep­re­sen­ta­tive APR is 109.6% and it con­cedes: “Our loans are more ex­pen­sive than a loan from a bank or a credit union.”

New lenders ex­ploit­ing the gap in the mar­ket left by the demise of Wonga in­clude Amigo and Oakam.

Amigo al­lows ap­pli­cants to bor­row over one to five years at a rep­re­sen­ta­tive APR of 49.9% even if they have a bad credit score, as long as they pro­vide a guar­an­tor. How­ever, the min­i­mum loan is £500. Some­one bor­row­ing that over 12 months would re­pay £618.36.

Mean­while, Oakam lets peo­ple bor­row from £200 to £1,750 and pay it back over three to 12 months – so again, it doesn’t quite fit the sce­nario. If you bor­rowed £250 over three months, you would re­pay £362.14. That’s a rep­re­sen­ta­tive APR of 1,584.5%.


▼ Short of hard cash? Take stock of all the op­tions to top up your funds

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