Need short-term cash but the salary is running out?
That heavily-advertised payday lender Wonga is trying to persuade us all that the new breed of payday lenders provides a community service.
Banks, meanwhile, have been accused of introducing daily fees for overdrafts which make them "more expensive than payday lenders".
But while online approval for a "lunchtime loan" may give instant gratification, borrowers can pay 30 times more than they need for the thrill.
Andrew Hagger of Moneycomms.co.uk has researched the cost of borrowing £400 for a month, and says: "The variation in charges is far bigger than many people realise."
On a typical agreed overdraft at around 19% the cost would be £6.55 (Barclays), while borrowing on a 9.9% credit card could cost as little as £3.36 (Co-operative). Even for someone with a poor credit rating, £400 of credit could cost under £12 on a specialist credit card (Aqua).
The new-style daily fee overdrafts do not come cheap, though Santander does at least have a £20 ceiling – not so Halifax Reward accounts where the bill would be £31. But even that pales into insignificance against the £118 charge for the same loan from a payday lender (Wonga or QuickQuid).
Hagger says: "Using a payday loan for just three or four days as a one-off can in some cases work out cheaper than paying unauthorised bank charges. However, because the process is so quick and easy and you don't have to speak to a human being to arrange it, people tend to use it more frequently – paying a heavy price for the speed and convenience."
The point is to apply in advance to put a safety net in place. Hagger adds: "Even if your credit score is blemished there are still much cheaper options than payday, with specialist credit cards from Vanquis and Aqua, and while the interest rates may look a little scary, the actual costs aren't that far out of line with some bank overdrafts."
Charlotte Sjoberg at Lloyds Banking Group, which has fee-free overdrafts at Lloyds TSB and Bank of Scotland, said: "Payday lenders think they are addressing a need but if you have any borrowing needs or concerns about cash flow, talk to your bank first, because banks are genuinely in a position to help."
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article