Whenever we borrow money we might have concerns about our lender. We may worry that they will not treat us as well as we might expect or that we might not get exactly what we were hoping for from the product that we are buying from them. However, we may also worry about whether they go out of business and what might happen as a result of that. This might be a particular concern with payday lenders as there have been some lenders that have gone out of business recently.
Am I right to be worried?
There is always a risk that a company could go out of business, but a change in regulations was something which many UK payday lenders felt the effects of. If it likely that a change of regulations might take place then there is the possibility of this happening again. A change in regulations will usually follow an inquiry and so it is likely that you will know whether this is something that is likely to happen.
If a lender does go out a business then with a payday loan this may not have a big impact. Your loan is likely to only last a few weeks anyway and so by the time there are any repercussions from the company going out of business, you will have paid it off anyway. Even if they go out of business their debts will still be collected and so you will not be able to get out of repaying the loan.
What can I do?
If you are still worried and want to protect yourself against this happening then you can try a few things. It might be wise to look in the news and see if there are any articles about any particular payday loan company struggling financially. You could take a look at the company’s books, which you can do through Companies House, to see what their previous years profits looked like as this could indicate what the current years will be like. You could also consider whether this type of loan is still popular and if demand is likely to fall enough to put lenders into difficulty.
If you are really worried about it and feel that perhaps you should not take out a loan like this as a result of your concerns, then there are some alternatives that you could consider. Firstly, as with any lending, it is best to consider not borrowing any money at all. Make sure that you really do need a loan. Consider whether you really need the item that you are buying with the money, for example and also think about whether you can get the money elsewhere. If you have any savings then it is wise to use those instead. You may also be able to ask for an advance of your salary which could be enough to help you out. There might be ways you can raise some money, perhaps by selling some things that you do not need or doing some work where you get paid right away.
If you need an alternative loan then there could be some options for you as well. You might be able to use an overdraft. If you have an arranged overdraft then this is the best way to borrow money using an overdraft. If you have no arranged overdraft then you may be able to still draw money using an unauthorised overdraft. You will need to be very careful though as these can be one of the most expensive ways to borrow money. You could be charged for each day that you are overdrawn as well a spaying interest on the money. This can add up really quickly and could mean that you end up with a great deal of fees to pay.
If you have a credit card, then this can be better option. You will still be able to get the money as quickly as with a payday loan or perhaps even more quickly, assuming that you already have a card and do not need to apply for one. They are still expensive but if you pay them back fairly quickly then they will usually work out cheaper than an overdraft. If you do not have a card, then it may take time to apply for one and you could find that if you have a poor credit record, you will not be able to get one.
If you do have a poor credit record then you will be very limited in the options that you have. You may not be able to have access to many loans but you might be able to find some different loans that need no credit check such as guarantor loans. These will take time to investigate and organise though and you may find that they are not a suitable loan type to address your needs anyway.