Image copyright
Getty Images
Three of the biggest payday lenders in the UK have collapsed or closed their doors in recent times.
While many people will not mourn their passing, others will wonder whether another door has closed on access to short-term relief for their finances.
Research by the City regulator shows that 78% of UK adults borrowed through some kind of credit or loan product at some point during the previous year – it is a way of life.
Yet, 11 million people have no more than £100 in savings to fall back on, while 4.1 million people have found themselves in financial difficulty by missing a number of repayments or domestic bills.
Disappearing payday lenders
Payday loans were charged high levels of interest, but their speedy payouts and willingness to lend to people the banks dismissed made them popular.
They were controversial and their lending practices – giving people loans they could not afford to repay – ultimately led to the downfall of some of the biggest players.
Wonga was a high-profile collapse last year. The Money Shop closed its doors and now QuickQuid has gone into administration. Others are still operating.
“Sometimes people think there isn’t an alternative, as they may have a poor credit score,” Caroline Siarkiewicz, acting chief executive of the Money and Pensions Service, told the BBC.
But she stresses that this is not true and has never been true.
The number of people in England and Wales finding themselves with unmanageable debt and going financially insolvent has hit its highest level since 2010. Personal insolvencies rose by 23% year-on-year to 30,879 in the third quarter of the year, official figures show.
Anyone can find themselves in a similar situation if they fail or are unable to repay their debts. For those who need short-term credit and are confident of repaying the money, there are options – as outlined by the Money and Pensions Service – without resorting to illegal money lenders, known as loan sharks.
Independent lenders
Community Development Finance Institutions (CDFIs) are small independent organisations that offer loans to people who have been turned down by their bank or credit card company.
They are all registered with the City regulator, the Financial Conduct Authority (FCA), and lend to individuals, businesses and social enterprises.
There may be relatively few in your area. The Finding Finance website has a searchable list of these lenders.
Asking for an advance at work
An employer may give some wages up front for those who need the money. They may also have grants for specific costs, such as travelling to work.
Some organisations have signed up to schemes that allow people to access some of their wages as they earn them, rather than wait until a monthly payday.
For those on benefits, short-term advances may be granted by JobCentre Plus advisers.
Borrowing from family and friends
This option seems to be growing in popularity, but can be fraught with emotional complications.
Experts say that, even when dealing with loved ones, it is crucial to keep the financial interaction professional. So an agreement should be put in writing, a repayment plan agreed, and details should be set out of the consequences if a repayment is late or never comes.
Visiting a credit union
Credit unions are locally-based organisations, where members pool their savings to lend to one another. There is a cap on the level of interest that can be charged. Generally, they charge about 1% a month.
The UK credit union sector remains small compared with other countries.
Using a credit card or overdraft
Credit cards can be used when borrowers are confident of being able to paying off the balance.
The same is true of an overdraft, which is agreed with the bank, although interest levels can be high.
Social schemes
People on certain benefits can apply for an interest-free Budgeting Loan from the Social Fund of as much as £800.
This is designed to help pay for anything from the extra bills when moving home to maternity costs.
Councils may also be able to give money for essentials such as food, heating and clothes through the local welfare assistance scheme.
Or don’t borrow at all
Consumer groups stress that borrowing for everyday essentials could simply lead to bigger problems.
Budgeting can tighten up finances, but there are many free advisers who will help you find the best way forward. Citizens Advice has specialist money advisers, while other organisations that can help include StepChange, Christians Against Poverty, Debt Advice Foundation, National Debtline and Shelter.