The worst (and best) ways to borrow if you’re broke
Urgent bills povertyIt’s no secret that lenders have been known to target the people who can least afford to borrow money, but they are rarely explicit about it.
Not online broker ‘Loans For Poor People’ though, a name so candid I briefly wondered if it was a spoof.
“Easiest Cash Solutions Specially Designed For The Deprived”, shouts the website.
“Apply and Enjoy An Instant Approval!” it adds lower down.
“Since we understand how precious your time is, we do not follow any credit checking process on our applicants,” the website enthuses.
More worryingly from my perspective, it’s hardly promoting responsible lending.
“We are not at all bothered about the way in which you are going to spend this money,” it assures readers, adding that borrowers can access loans of up to £1,500.
Of course, there are many good reasons for people on a low income to take out a loan – urgent home improvements, for example, or a new boiler. But if you’re in this position then a high interest loan arranged through a website is unlikely to be the best bet.
The costliest loans for poor people
Despite that, there are worse loans you might be tempted by if you’re on a low income or have a poor credit history.
Arranging a loan through a doorstep lender can be one of the most expensive ways to borrow – and there’s evidence that some lenders encourage customers to stay in debt.
But at least doorstep lenders are licensed. If a doorstep lender offers you a loan but doesn’t show you a license then they may well be an illegal loan shark, and they are dangerous. These people often target desperate families, particularly at Christmas.
They seem friendly at first but borrowing from then can be an expensive error. The Money Advice Service reports that one woman who borrowed £500 ended up repaying £88,000. That’s just crazy.
Even though they charge an obscene amount of interest, payday loans can be useful on some rare occasions.
For example, if you need cash in an emergency and had no other option then a payday loan can be the right product, as long as you know you can repay it at the end of the month. It’s certainly better than falling into the clutches of a doorstep lender.
But those situations are few and far between – yet payday loan companies market themselves unscrupulously to people who are simply a bit short of cash. “Why wait for payday?” is the slogan of one payday loans broker that recently hired former bankrupt Kerry Katona to front its advertising campaign.
So if you’re on a low income and you have a poor credit rating, how can you borrow money if you need it?
Real loans for poor people
If you face a real emergency, like a broken boiler or need to replace a door following a break in, then you may be able to qualify for an interest-free Crisis Loan. The amount you can borrow will depend on why you need it and how much money you have in savings.
Decisions can be made on the same day and payment can be within a few hours. Apply through your nearest Jobcentre Plus, which you can phone on 0800 032 7952.
If it’s not an emergency, then you’re unlikely to be able to qualify for a Crisis Loan. However, there is still another official option. Budgeting loans are for essential purchases like rent, furniture or clothes.