The truth about payday loans (and the alternatives)
You’ve spent your loan and all you’ve got left is baked beans. A payday loan might sound tempting; we’re here to tell you why it’s not plus the alternatives.You’ve probably heard quite a lot about payday loans recently – you might have even contemplated getting one for yourself. Yet while these types of lenders can offer cash in a flash, we’re here to tell you why you shouldn’t touch them with a fifty foot barge pole.
These kinds of loans are nasty, sneaky, horrible and just plain yucky – we really can’t say enough adjectives on the subject.
However, we do appreciate that many students will come under financial difficulty during their time at university, so we’re taking this opportunity to explain exactly why they’re so awful and offer you some genuine (and better value) alternatives.
Put simply, a payday loan is usually a small loan that can be taken out over a short period of time with very little questions asked.
It is expected that the loan will be paid back within the month, typically once you’ve been paid, hence the name.
They might also be referred to as ‘cash advances’ or ‘pay cheque advances’. Whatever you want to call it though, they should still be avoided like the plague.
Payday loans can be tempting as they offer an immediate influx of cash – in some cases all you have to do is text – but it is really important to consider the long term impact of taking out this kind of credit, as well as the costs involved.
Well, where do we start. First off, payday loans come with crippling interest rates. Pretty much all payday lenders charge APRs that are well into the 1,000s of %.
APR stands for Annual Percentage Rate and is the interest rate that you would pay over a year. While you may think that because you’re only borrowing the money for a short space of time, it won’t be so bad, such high interest rates mean your interest will hit double figures in days.
That, coupled with a host of other charges for everything from late payments to rollovers, mean that it would almost always work out cheaper to take the hit on a credit card (see the alternatives below).
The major danger of payday loans, other than getting charged extortionate rates that is, is not being able to pay back on time. This is enough of a problem for people in full-time employment, let alone a student.
Even if you do manage to pay your loan back on time, you’ll probably find you’ve spent all the money you would have been using to live that month. Also, the mere fact you had to take out a payday loan could impact your ability on getting a mortgage later on in life.
It really is a slippery slope and you could find yourself living on payday loans in a downward spiral. This is not a financially viable option.
At the end of the day, if you are in enough financial trouble to consider taking one of these loans out in the first place then it is more than likely you will not be able to afford to pay back interest rates such as these. And these companies reply on you not being able to make your repayments as one of their main revenue streams.
If you’re short of money payday loans should definitely not be your first consideration. There are many other ways of sorting out money problems that do not have repercussions later on.
If you ever find yourself in a situation considering a student payday loan then make sure that you have tried every single one of these options – and more – first! Even then, make sure to seek advice from wherever you can.
This is one of the most frequent questions we get via email and the following list has saved 100s of students.
Access to Learning Fund
It is surprising how many students do not know about this.
The Access to Learning Fund is run by individual universities and allows students struggling to pay for their studies to apply for help. Each case is looked at individually so you will need to provide evidence of your financial situation.
0% student overdraft
Make sure you have a student account and are using the maximum amount of your overdraft. You could get around 2k – 3k and if you’ve already hit the limit then you can ask for an extension (although not guaranteed).
You might be interested to know that some student bank accounts charge less interest on an “unplanned” overdraft spend than the interest on a Payday loan!
0% credit card
There are credit card out there that allow you to borrow money at 0% for up to 18 months. If you know that you’ll be able to pay back the balance in this time frame then it’s a much better option than a Payday loan.
Worried about credit cards? Read our guide first to put your mind at rest.
You can find out if you have a local one here.
They can lend you money a lot cheaper than payday lenders.
This should be a very last resort but it’s still better value than a Payday loan.
The only issue that you may find is the bank’s reluctance to give you a loan. It’s still worth trying of course.
Ask your parents/friends
No one particularly enjoys going to their parents with money problems but it’s unlikely they’ll charge 5,000% interest. It may seem drastic but it’s better than the alternatives. It might seem tricky, but we’ve put together a guide to help you out.
If you feel confident about it you can ask a friend too. However, this comes with a disclaimer as many friendships have been ruined by similar situations so make the decision based on what you feel is acceptable.
Free professional advice
If you really feel stuck and feel that your university isn’t supporting you full then you can get free advice from the Citizen’s Advice Bureau.
It isn’t always possible but giving yourself a stricter budget for your weekly living but it can make a substantial difference. It’s always good idea to always have some spare money in case of emergency.
Boost your bank balance
Look for other ways to make money to cover your costs. There are tonnes of ways to help get some extra dollar, we’ve listed 40 genius ideas here!
At Save the Student we would never encourage anybody, student or otherwise, to take out payday loans or give into the temptations of instant credit. If it seems too good to be true it most probably is.
If you are really being affected by debt then it’s best to get in contact with your specific student’s union and talk to a free debt advisor.
Have you had an experience with a Payday loan company? Have you just avoided one by using the other forms of funding listed above? We’d love to hear about your experience in the comments below.