You may find yourself in a position where you need or want to borrow money. Whether it’s borrowing a large amount for a car or a small payday loan to top up your wage there are lots of different ways to borrow and it can all get very confusing.
• What types of borrowing are available?
• What are the risks?
• How can we help?
The bottom line is there are many different ways of borrowing money and sometimes they can be difficult to understand. We want to provide you with a simple guide to the four key types of borrowing that we often see our members use and ways we can help.
Payday loans are short-term loans originally designed to tide people over until payday. The money is paid directly into your bank account, and you repay in full with interest and charges at the end of the month (or your payday).
A payday loan is expensive and could make your situation worse if you can’t afford to pay it back on time. You need to think carefully before choosing one. It’s easy to fall into a vicious circle and feel there is no way out.
Did you know – If you’re struggling to repay loans, credit cards, and other bills, you can get free, confidential advice from a debt advice service.
How can we help?
Stockport Credit Union offers lots of different loan types for different circumstances. Because we are a not-for-profit organisation, you can be sure that we are keeping our rates as low as possible. If you are considering a payday loan, you might find it more useful to apply to us for a loan for the amount you need and pay it back in small repayments rather than repaying the whole amount on payday. We will also help you to start saving to ensure that you don’t fall into a vicious circle of borrowing. Take a look at what we offer.
In a recent study, the CIPP (Chartered Institute of Payroll Professionals) found if payroll loans replaced high-interest payday loans that –
“UK workers could save more than £250 million a year”
This definitely suggests that a payroll loan may be a much better way of borrowing. So, what is a payroll loan?
A payroll loan is a loan locked into your wages: you pay it back as you earn, directly from your wages.
Payroll loans are often repaid over a longer period which keeps interest rates lower. We offer a fantastic payroll loan scheme, check if your employer is signed up here.
You borrow money on a credit card by borrowing from the card’s provider. The credit provider sets you a credit limit, then you get billed a month later. You have the option to pay the balance in full or pay a smaller repayment. If you opt to pay a smaller amount it can prove costly.
There are a variety of different credit cards which, can be used for different purposes:
Money transfer credit cards – Money transfer cards let you transfer existing debt from a higher interest card to a lower interest new provider. It is worth looking for one of these cards if you are paying a high rate of interest on your current card, but beware they often come with a balance transfer fee. You also need to check how long the lower interest rate lasts, as it could get expensive after the introductory period.
Purchase/Store cards – Purchase cards are specifically for purchasing goods and services. The keyword for these types of cards is shopping. Whether that be online/in-store, in a restaurant, tickets for an event, etc.
Credit builder card – Credit builder cards help to build up your credit score, and to do this they often come with a higher interest rate than other cards. They can be very helpful in certain situations but must be used with caution.
How can we help?
Credit cards can be useful, but it’s easy to lose control. If you only repay the minimum payment, it’ll take a long time to pay off your debt and you’ll end up paying a lot more than you borrowed. Often it can save you money to consolidate the debt into a loan.
The first step to getting out of credit card debt is to see how much interest you are currently paying on your credit card and comparing it with an alternative provider. Try our loan calculator to see how we compare.
Overdrafts can be a little confusing. What are they?
An overdraft IS A FORM OF LOAN. It’s an amount agreed by your bank that you can withdraw, taking you into what is called a debit or negative balance (overdrawn).
When you use an overdraft with your bank you are spending more money than you have in your account. Overdrafts are designed to be a short-term lending solution. Some people find themselves “living” in their overdrafts and this is an expensive way to run your account. If you are constantly using your overdraft that means you are being charged interest/fees with no payment plan in place to ever repay the debt. Very lucrative for your bank!
How can we help?
Taking a loan out to repay your overdraft might be a good way to save you some money. The difference between an overdraft and a loan is that while you pay interest on both, the loan options mean that you are paying your debt off and often at a cheaper interest rate.
Did you know – often if you speak to your bank they will allow you to reduce your overdraft monthly or weekly. Even reducing it by £10 a month will start chipping away at the interest and fees.
Loan sharks are illegal money lenders who often target low-income and desperate families. They might seem friendly at first but borrowing from them is never a good idea – even if you feel you have no other options.
Loan sharks offer extremely high-interest rates on loans and often commit crimes to finance the loans. They are also known to act criminally when trying to get the money back from customers.
“Some loan sharks have attempted to charge interest rates as high as 719,000% “
Source: BBC News.
If a lender is not authorised by the FCA (Financial Conduct Authority) they are committing a criminal offence. These organisations and people are known as loan sharks. You can find out if a lender is registered with the FCA by visiting www.fca.org.uk and checking their official register.
How can we help?
Credit unions can offer loan products to people that may struggle to get credit from high street banks. Take a look at our loan products and let’s see if we can help you.
Please note, any savings in our Share 1 account are ‘locked’ whilst any loan is in place.
Remember – If you feel that your debt situation is out of control, you don’t need to struggle alone – help is available and no situation is hopeless.
It’s always best to talk things through with an experienced debt advisor before you make a decision about what to do. See our list of reputable debt advice services below.