Be cautious about using payday loans – Money Week 2023
What is a payday loan?
A payday loan is a short term financial loan, available from an online and in some areas a high street lender which is not a bank. The concept of a short term contractual loan which could be offset by your next wage (hence the name) originates from the US although high risk/high interest lenders are nothing new.
They are relatively easy to get and few credit checks are applied, which means that they are particularly appealing to people who are already financially vulnerable, possibly due to low incomes, poor credit or restricted access to overdrafts and credit cards.
The idea is that you borrow a not significant amount of money until your next ‘payday’. The lender should always check your ability to repay by asking for evidence that you have enough money coming in each month to be able to pay the loan back in the agreed timeframe. In theory, it all sounds reasonable, but in reality lenders do not carry out extensive checks, the interest rates are extremely high and you will repay significantly more than you have borrowed. Have a look at Money Saving Expert for examples and more information.
If you’re struggling for extra cash, there are other options to try before taking out a payday loan. In fact, you may not need to borrow at all.
If you’ve things in your house you’ve not used or worn in a year, ask if it’s worth keeping. If not, flog it and make some money. You can sell old mobiles or gadgets using Compare Mobile Buying Sites or eBay and Vinted for clothes, shoes, cds, bags and every other accessory you can think of.
How’s your budgeting?
Payday loans may seem to offer a quick solution, but they only postpone the problem. If you’ve borrowed £200 this month, and £250 (repaying the loan plus interest) is taken out of your salary on your next time your student loan comes in, how are you going to make sure you’re not short again very quickly?
Spending more money than you earn is a classic reason people get payday loans. Doing a proper budget will give you a clear picture of where you are overspending.
There might be something you can give up to save money – whether it’s coffee, cigarettes, or walking instead of getting the bus – small savings can quickly add up.
We wan you to come and talk to us in Student Advice Service to discuss your money problems. We can sit down and go through your budget and spending habits with you and we will always look at how you can maximise your income which could include applying to one of our hardship funds if you are eligible.
Credit unions are not-for-profit organisations, set up to help members save or borrow – often offering short-term lending at more affordable rates than ‘normal’ payday lenders. Each has a ‘common bond’, which is the criteria you’d need to meet before you can join. This is essentially who the credit union is set up to help, for example residents of a certain town, or employees of a particular industry. Locally, we have the Wave Community Bank – have a look, they have lots to offer to people living and working in East Sussex, Brighton & Hove, Kent and Medway.
Student Advice Service