Credit Union Loans vs. Payday Loans
Which Personal Loan Provides the Better Solution to Money Problems?
Mar 12, 2009
The Citizens Advice Bureau (CAB) dealt with an average of 4,760 personal debt problems each day during 2008. Literally millions of people are struggling to balance their income and expenditure each month, creating a huge demand for both credit union loans and payday loans. Which of these provides the better option for those struggling with money problems?
Lending Criteria for Personal Loans
The lending criteria are completely different for payday loans and credit union personal loans. A payday loan is only available for those in work. Credit union personal loans are available to low income families, but are instead based on affordability. An assessment of income and expenditure figures will be performed to see if borrowing money is in the members' best interests.
Payday Loans Charge a High APR
The APR on payday loans is a usury 1000% per annum. This means that payday loans charge customers the equivalent of £20 for every £100 borrowed each month. The maximum a credit union can charge for a personal loan is only £2 for every £100 borrowed each month. Many credit unions charge far more favourable rates to their members.
Payday loans offer a poor deal to bad credit customers, although they do reflect the risk posed to those lending money. Chris Tapp of the Donal MacIntyre programme stated that, "We would only ever want to see people using payday loans if they have a desperate, one off short-term need and there is absolutely no other option."
Payday Loans and Short Term Money Problems
A payday loan is designed to assist individuals with short term money problems. The high APR would mean that monthly repayments would be too high for a term that is longer than a single calendar month. Payday loans can also exacerbate money problems as the interest paid means that there is less money available for household bills the month afterwards.
Credit union personal loans charge a lower APR than payday loans so the loan term can be extended, if necessary. Greater care is taken to ensure that monthly repayments are affordable for those borrowing money. There is also greater flexibility in terms of making early repayments without penalty.
A credit union personal loan is a vastly more favourable option for a low income family struggling with money problems. Credit unions will work with those that borrow money to ensure affordability at a fair rate of interest. They are non-profit organisations that consider only the interests of their members, not profit margins.
Those struggling with financial difficulties and personal debt may be interested in finding out whether they have an illegal credit card or unenforceable loan agreement. Individuals that are struggling with serious debt problems may be able to write-off debt with an Individual Voluntary Arrangement.
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