Soaps such as Coronation Street have some pretty arresting storylines that are designed to make us think. From bullying to eating disorders, any regular soap watcher will have seen it all. Earlier this year Coronation Street highlighted the dangers of borrowing from illegal money lenders with Tyrone and Fiz who got into a spot of bother with a loan shark. Unfortunately, they’re not the only ones.
Why do we borrow badly?
The perception is often that established lenders are less likely to offer finance to anyone who doesn’t have great credit. Like the characters in the soap opera scripts we often think that there are no options left other than the illegal lender. There are also plenty of illegal lenders who seem perfectly reasonable and friendly at first – and then turn out to have a completely different agenda. Threats of violence, spiralling ‘interest’ and huge debt demands can all be part of the experience of borrowing from a moneylender who is less than legal.
Is there another way?
In real life – away from the required drama of a TV script – there are plenty of bad credit loan options. You don’t have to borrow from an illegal lender if your credit score is low – even if you have CCJs against you. There are other ways to borrow:
Payday loans – look online to find payday loans. As payday loans are smaller than a typical personal loan, lenders are often more open to those with bad credit histories. As long as you can provide proof of income then a less than perfect credit score shouldn’t stand in your way.
Secured loans – if you own your own property there are plenty of legal, reputable lenders who will be willing to lend you the money you need with your home as security.
Guarantor loans – if you have a close friend or family member able to act as a guarantor then there’s no need to turn to an illegal money lender. Guarantor loans are designed to help those with bad credit obtain finance. Your guarantor effectively stands behind you and provides the lender with another option if you can’t pay.
The risks with illegal lenders
Apart from the stress of dealing with illegal lenders, there are other risks to bear in mind too.
No written terms – you have no record of what was agreed
No regulation – illegal lenders don’t have to abide by the law
Doubling debt problems – you could end up repaying your loan many times over to an illegal payday loans lender
A bad result – borrowing from an illegal lender could leave you much worse off financially than you were in the first place!
Safe short-term borrowing
It’s important to remember that there are millions of people in the UK who safely borrow payday loans every year. Many of them don’t have a great credit score. Payday loans remain a simple, fast way to manage unexpected financial demands, from a large utility bill, to problems with the car or the cat. Since the changes to payday loan regulation at the start of 2015 relatively few users have ended up having a bad experience.
If you’re looking to borrow a payday loan, whether or not you have good credit, then it’s simple to make sure you do it safely:
Make sure you know what you’re borrowing i.e. how much the interest rate is and exactly how much you’ll be paying back at the end of the loan – the interest plus the loan amount.
Ask plenty of questions. If you’re not sure about any element of the arrangement then don’t be afraid to ask.
Home collections are not always the sign of an illegal lender. Doorstep loans, for example, are a perfectly legal – and often convenient – way to borrow and repay so don’t be put off a legal lender if that’s an option they offer.
It’s important to have paperwork. Having a record, in writing, of what you’ve agreed is essential, just in case there are any disagreements in future.
Don’t borrow what you can’t afford. It seems obvious but it’s the key to making payday loans work for you. Missing a repayment could have a negative impact on your credit record and be stressful to deal with. On the other hand, you could improve your credit score by making all your repayments on time.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley