How to Get a Cheap Payday Loan – A Quick Guide

In the UK payday loans tend to be a quick way to get emergency cash. Before automated systems and specialist companies you would secure a loan at a pawn shop with items that you have which the shop owner would consider is equal to or of more value than the loan you are requesting. Today you are payday loans are available everywhere – from your local high street shop (one of the few success stories of the high street in the digital age) to online. 

But there is one thing that they have in common – that they tend to be extremely highly priced for the loan that are on offer.  Typically, interest rates on payday loans are at 1100% APR (which means that should you take a year to repay the loan it will cost you over10 times the original amount you borrowed – though note the UK Government have introduced caps and are looking to further legislate in this area). The typical alternatives to these loans are illegal loan sharks (who are unregulated, connected with the criminal underground and tend to use violence to recover any debt). 

The combination of the two means that it is easy to take out a payday loan and enter into a world of over-indebtedness – by needing to continually borrow to pay off your fees. In fact most of the cost of borrowing a payday loan is the default fees applied (as most of those who take out a payday loan is in need for quick finance it is also more likely that they will default on their loan repayments). 

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So how do you take advantage of ease of access to finance that payday loans provide, but without the extremely high fees? The answer is social financial providers – such as some credit unions. 

Social financial services companies are social enterprises (largely not for profits) who set up to help rather than profit. Their fees are significantly less than payday lenders due to them trying to combat over-indebtedness. 

Credit unions who provide short term loans (i.e. payday loans equivalent) have their interest rates capped to a maximum of 42.6% APR – which compared to payday lenders (1100% APR) is significantly cheaper. Additionally many spread the loan over longer periods of time to allow smaller repayments (i.e. if you take out a loan of £400 as a payday loan – meaning it become due to be repaid by your next payday – then you will need to find this amount (plus interest) within 30 days. Whereas credit unions tend to spread the repayment periods over a longer time).

However, there are disadvantages – social lenders tend to have significantly less resources and much less automation in their systems. So instead of receiving a loan within hours (sometimes even minutes) you will have to wait for a few days due to manual processing. But this should not deter you. 

Our tip is to borrow from your local credit union rather than high interest lenders. Although you may have to wait longer to receive your loan, the three days extra is nothing compared to the costs of borrowing with a high interest (we will have a blog post on dealing with debt and paying bills shortly to tell you how to handle yourself in an emergency). 

Conclusion

Do not get caught out by high fees of payday lenders – shop around for social financial service providers such as credit unions. They can give you a over 900% APR off borrowing the same amount from a payday lender.