Payday loans should be a last resort – check the alternative options first

People frozen out by mainstream lenders shouldn’t fear the demise of the payday loans industry as there are better options available even if your credit rating isn’t the best.

Specialist Credit Cards

The big credit card companies will give you the cold shoulder if your credit record is below par but there are a number of specialist credit cards that can help you get back on your feet.

The interest rates are higher than standard credit cards but much less than payday loans. Tesco Bank for example charges a representative APR of 28.9% on its Foundation Credit Card and Marbles comes in at 33.8% APR.

Another option in this market comes from MBNA with its credit builder card at a representative APR of 25.9% APR.

To rebuild your credit status, you need to show that you can manage a credit card in a responsible manner, and by making payments on time EVERY month then over time your credit score will gradually start to recover..

Paying the full statement balance each month is even better as you’ll be improving your credit score without paying any interest charges in the process.

Guarantor loan

Another cheaper payday alternative is a guarantor loan with sums of between £500 and £5,000 available from Amigo Loans at a representative APR of 49.9%.

You will need to find a creditworthy friend or relative to act as guarantor for your loan and  if for some reason you are unable to pay, then the guarantor becomes liable for the outstanding balance.

Amigo feeds back your payment history to the credit reference agencies, so again paying on time every month is another step towards a healthy credit score.

Finally, don’t forget your local credit union.

Although you’re unlikely to be able to borrow more than £1,000 until you’ve proved your ability to save, it’s another low cost avenue to explore if you’re shut out by mainstream banks.

Many credit union loans will cost you no more than 1% per month (12.7% APR) on the reducing balance of the loan.

To find a local credit union visit www.findyourcreditunion.co.uk and simply enter your home town and postcode details or alternatively give them a call on  0161 832 3694

If money is tight a payday loan may look like an easy solution but it’s not – always check out the smarter options first.

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