Finding the best ways to borrow Quick and easy credit
Payday, logbook and doorstep loans are very expensive and usually best avoided
Payday loans
Payday loans, as the name suggests, are designed to offer short-term loans to tide you over until you receive your monthly salary. They are never suitable for medium- or long-term borrowing.
These loans may seem attractive if you're struggling to get credit from your bank as they promise a quick decision with no credit check. However, APRs on payday loans can be incredibly high. A quick search of payday lenders' websites reveals interest rates of 1,700% APR and above are common.
If you've got a choice, it's nearly always best to avoid payday loans due to the high cost. Bank overdrafts, credit cards and credit unions will usually offer better value. However, as a one-off bridging loan until payday, you may decide that repaying £125 on a £100 loan for a month is better than going over your overdraft limit and being hit with charges, or, worse still, approaching a loan shark.
It is possible to roll a payday loan over for another month, although not all providers allow you to do so. If you do roll the loan over, or borrow from one payday loan provider to repay another, however, the charge is added each month the loan is not paid off.
So, if you borrow £100 in month one, you'd need to borrow £125 in month two to repay the original loan. You'd then have to repay or borrow £156 at the end of month two. If you rolled the original debt over 12 times, at the end of the year you'd owe around £1,450, just for borrowing £100.
Logbook loans
Similar in cost to payday loans, logbook loan companies lend money secured against your car. They promise no credit checks and quick access to the money, and you can generally borrow more than with a doorstep loan. But again, they come at a very high cost. And if you don't keep up repayments you could lose your car.
Doorstep lending
If you're struggling to be accepted for a loan or credit card from your bank, it might be tempting to get a loan from a doorstep lender. Also known as home credit companies, they specialise in lending fairly small sums, with weekly or fortnightly repayments collected from your home. The best-known doorstep lender is Provident Personal Credit, widely known as the Provy.
As with payday loans, interest rates can be very high. In late January 2011, Provident Personal Credit was charging an APR of between 272% and 1,068% depending on the amount borrowed and the term. LoansAtHome4U.co.uk were charging between 400% and 632% APR. CLC Finance. In all of these cases, you'd be much better off borrowing from a credit union.
If you're struggling with debt, it's worth taking advice from a free advice organisation such as the Consumer Credit Counselling Service or National Debtline. For full details, read our free guide How to deal with debt.
- For a personalised solution, call our experts on the Which? Money Helpline
- Struggling to budget? Read our guide on planning an effective budget
- Money worries? Take a look at our guide to dealing with debt
