Payday loan companies have been quick to flourish in the recent financial climate. But unfair fees and high interest rates have attracted a lot of criticism. Although payday loan companies have recently promised to be more transparent about their fees and charges, it is wise to remain wary. But what alternatives are out there out there if you need a short term loan to tide you over until payday?
Guarantor Loans and P2P Lending
There have been two recent innovations in the financial marketplace The P2P marketplace can offer short term loans on more favourable terms than other loan providers, as well as providing a good return for savers. Offering lower APR rates for borrowing, transparent costs, and the ‘feel-good’ factor of social lending, peer-to-peer lending has led to a surge of interest from borrowers and lenders alike.
Similarly, Guarantor Loans provide a new way for a borrower with bad credit to access a loan. Having bad credit severely limits your borrowing options. Often, it’s impossible to get credit, or crippling APR rates can exacerbate existing financial problems. And having a guarantor as security against the loan will enable you to both borrow and repair a poor credit score. The guarantor does have to be financially viable, and willing to take over responsibility for the loan if necessary. However, as competition grows, the criteria for the guarantor of an unsecured loan is loosening, and they do not necessarily now have to be homeowners.
So, as traditional financial institutions continue to squeeze credit, it’s worth remembering that there are now more diverse options available than ever before.
- If possible, avoid payday loans – these are a costly way of borrowing money.
- Find a lender who doesn’t charge hidden fees
- Use a lender who will allow you to pay your loan back early if you are able – that way you will avoid paying the full interest rate.