Payday loans have helped thousands of people out of a tight financial spot, but they also come with eye-wateringly high rates of up to 0.8% per day. To put that in perspective, if you were to borrow £200 for four weeks at a daily rate of 0.8%, you’d pay just under £45 in interest.
Text loans make it easier than ever to get your hands on these high-cost, short-term loans, but debt charities argue this could lead to irresponsible decisions. Is there such thing as a loan that’s too easy to get?
Warning: Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk.
Please note: High-cost short-term credit is unsuitable for sustained borrowing over long periods and would be expensive as a means of longer-term borrowing.
A text loan is essentially a payday loan that you can apply for via a text message. You just send one message to your lender via a smartphone app, and it can approve your loan almost instantly, even if you have a poor credit rating. The first time you apply you’ll need to go through a similar application process to a standard payday loan, but thereafter you’ll be able to use the text service. And certain lenders go a step further and offer an automatic “top-up” for your bank account, if your balance drops below a certain point that you set.
Once you’re up and running, you could be approved for a payday loan literally within seconds. As more lenders adopt text loans, they’re starting to become the backbone of the payday lending industry.
Payday loans can be useful for those who need speedy access to cash, but they’re extremely expensive, to the point where most other forms of finance are likely to prove more cost-effective. They aren’t suitable for sustained borrowing. As such, it’s always worth considering the other options – credit cards and personal loans, for example – first.
Some debt charities believe that making it so easy to apply for a payday loan through your mobile phone could lead to more people making careless financial decisions. It’s also been claimed that text loans could make people more likely to use payday loans multiple times, even though this is a terrible financial strategy.
The counter-argument goes that customers bear responsibility for judging whether they should be taking out text loans, and providers are just making their product as accessible as possible.
Among the lenders who offer text loans are:
These are just some examples – the list is growing all the time.
Best of all, if there’s any way you can defer the expenditure, that’s always going to be your cheapest option (don’t use a payday loan to fund a night out, for example!). Real financial emergencies that can’t be put off do crop up, though. You can always get sound and free debt advice from the government’s MoneyHelper.
The advancements in technology have made most elements of our lives quicker and easier. This makes it all the more important to ensure you read the terms of a loan before you apply for it. Text loans could be suitable for borrowers who need fast money and have no other options. However, it’s likely that borrowers with a good credit score will have access to more cost-effective loans.
It’s really the lender that wins here. The convenience of text loans makes it much easier for borrowers to slip into the habit of regularly taking out small, expensive loans from the same lender. The trouble is, high-cost short-term credit simply isn’t suitable for sustained borrowing.
In fact, you should only ever take out a payday loan to cover an unexpected financial emergency – and even then, only after considering cheaper alternatives. Using them regularly is a bad idea that’s likely to make it harder for you to improve your financial situation.
If you have decided to take out a payday loan, however, compare a good selection of lenders and take out the loan with the lowest overall cost – regardless of whether or not it comes with a text loan service – while ensuring that the repayments will be affordable.
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