One quarter payday loan customers can borrow from banks

Citizens Advice will be reporting that up to one quarter of customers of payday loan firms could have turned to a bank for assistance instead. Many people do not know that there are other sources of low cost borrowing available to thousands of families across the UK, and people do not just need to automatically turn to a payday company or other options, such as guarantor loans.

The number of high street banks that can provide funds to consumers is extensive. The loans will tend to be provided at a lower interest rate and also have reduced fees, which can save the borrower an extensive amount of money over time. The banks will also be closely regulated by the FCA so there is a smaller possibility of these companies taking advantaged of borrower.

Reasons for people not turning to banks

One of the main reasons that consumers turn to a payday lender is that they can get the money in less time. This is one of their advantages over major high street banks. But people will pay a cost of that money in higher APR rates and fees. However, banks can also provide money is less time using an overdraft plan.

Since up to 25% of borrowers may be able to qualify for other sources of money, they should not be quick to take on the first deal they are offered. While accepting the first offer may get them the money in less time, if the interest rate is too high (such as with a payday firm) then it can cause the borrower to enter into a never ending debt cycle.

When dealing with a bank, some of those lenders are concerned that a borrower may miss future payments on the loan. Maybe the applicant had credit problems in their past hat have been resolved, or maybe the wages of the applicant are not too high. So there are reasons that a bank may be hesitant.

In these cases, the family can seek an arranged overdraft plan. This will reduce the risk to the bank. It also pay out the cash to the borrower in less time. This form of deal can help some of those one quarter of borrowers that are missing out on the lowest source of short term credit.

The arranged overdrafts also take less time to approve. This means that the person can get access to the money in less time. It is even close to the type of deal provided by payday lenders. So this type of arrangement can help them address emergency need for money.

People should always shop around. Citizens Advice as well as other counselling agencies will recommend this. They should check with all different types of lenders for the lowest interest rate and best terms. This can include checking in with their credit union or a bank that is local to them.

Citizens Advice is trying to encourage banks to ensure that all of the rules they use are easily understood by customers and fair as well. If this is done, this will help more people access alternatives to those payday loan firms.

There are also cases in which a loan won’t be affordable, no matter who the lender is. But even for those families they can still get help from debt counselling from charities such as Citizens Advice or Christian Against Poverty, among others. These organisations can also help them improve their financial condition.