Research has suggested that consumers looking for extra finance prefer longer term loans than the kinds of short term loans offered by payday lenders.
The main point of the research showed that borrowers would be able to save vast amounts of money that would usually be paid to payday lenders via interest and fees, by withdrawing loans over longer periods of time, from lenders like credit unions.
The Case against Payday Loans
Payday lenders will typically require their customers to repay their loans in a relatively short space of time, usually within one month of withdrawing a loan.
Much of the reason that payday loans get such bad press has been over the high APR’s and the amount of interest charged on late repayments. This can cause borrowers that are unable to meet repayments to feel pressured into withdrawing another loan soon after, which can plunge them into an unmanageable debt spiral.
In some instances credit unions can be cheaper than banks and payday lenders, but the major drawback is that credit unions are exclusively for certain applicants, and not open to all – meaning you may have to become a member and wait before you can borrow money. This is where payday lenders and other forms of lending like guarantor loans can offer a solution to those who need the money sooner rather than later.
Credit Unions are run by and for similar types of people, often with one common link between them. For instance, some credit unions are only open to certain types of profession, religion or people living in a particular region. If you are eligible to join a credit union you may be able to find an offer that is suitable for you. These tend to be offered to customers on more reasonable terms than a payday lender.
Some have a few measures that can get in the way, like restricting how much you can take out. Some may even ask you to deposit money into the credit union for a set amount of time, sometimes a few months ahead of withdrawing any loans.
For many people looking to borrow money this can defeat the object of joining a credit union, as many people wanting to withdraw loans may need them urgently – rather than using it to gather funds for a bigger spend on something like a household appliance or money to fix their car.
The difference in the availability of the loans can then lead to problems when it comes to comparing the offerings from credit unions. Comparing credit unions that are available to you can take a lot of your spare time – this can include searching for local unions and comparing their products yourself, rather than being able to use a comparison site.
For those who are not eligible for a credit union, a guarantor loan can be the next best thing.
Guarantor loans, unlike credit unions, can be much easier to compare to see how suitable they are to your situation as they tend to be listed on many comparison sites.
They also provide a solution to those who are ineligible for credit unions as anyone is welcome to apply. They can also be ideal for borrowers who want a longer term solution to payday loans at lower rates of APR.
Guarantor loans can provide a more responsible source of lending when compared to payday loans due to the need to find a willing guarantor. Anyone considering applying for a guarantor loan should be sure that both they and the guarantor understand the commitments made to each other, and the commitments made to the company providing the loan. This can help to avoid any issues further down the line after a loan is borrowed.
More responsible lenders within the market that incorporate credit checks into their application process can help the borrower to be more confident in their ability to withdraw a loan and afford monthly repayments.
Regardless of your method of obtaining finance, the primary focus of any loan product should be how appropriate the loan is for you. Anyone withdrawing a loan should be completely satisfied the product meets their needs and is compatible with their finances as a whole.