If you find yourself a bit short, for whatever reason, you may need to borrow some cash. But before you sign on the dotted line, are you sure you’ve considered all the angles? How much can you afford to pay back? How long to do you need to borrow the money for? What is the right product for you? Are there any hidden fees and charges?

Borrowing more money is usually not the best way to deal with debt. Anyone who reads the newspaper or switches on their television will be aware of the easy availability of payday loans and high cost, short-term credit. These lenders may seem convenient but their loans should be viewed with caution. Interest rates can be incredibly high and there may be hidden fees and penalties for late payments, leading you into a spiral of debt.

If you can’t make the repayments on a payday loan on time you could end up owing the outstanding balance plus interest, fees and charges. Some payday lenders allow you to borrow more money or ‘rollover’ your loan, but this might only make the problem worse. After all, if you weren’t able to pay back in the first month, making the payment in the second month is unlikely to be any easier.

Although there are restrictions on how many times a lender can allow a rollover, if you have more than one loan, debts can very quickly mount up and start to weigh you down.

Regulation of these lenders is being tightened by the Financial Conduct Authority, the UK’s financial regulator, but that doesn’t let you off the hook: you should always read the small print and think carefully about whether you really need to borrow in this way.

The best thing is to look around for more affordable forms of lending and think carefully about your reasons for borrowing. There might be alternatives and we can help you find them.

If you have a bank account, you may be able to agree an overdraft – it’s better to talk to your bank about setting one up rather than waiting to go overdrawn as this may lead to financial penalties. If you are on a low income and need money in an emergency, you may be able to get a budgeting loan from the Social Fund to pay for essentials. There may also be help in your local area, for example, through charities or food banks.

There are other options. Credit unions are lenders in your community which offer loans, savings accounts and bank accounts. They can also help you manage your money more effectively in the longer-term. Credit unions are not run to make profits for external investors and profits are used for the benefit of members. They all offer savings and loans, but some offer current accounts and even mortgages.

Generally, to be part of a credit union, you need to share a ‘common bond’ with other members. This means you need to have something in common with them - whether that’s living in the same town, working in the same industry (e.g. transport) or belonging to a particular trade union.

Credit unions are regulated by the Financial Conduct Authority and the Prudential Regulation Authority and deposits up to £85,000 per person are covered by the Financial Services Compensation Scheme – which means they offer the same protection for your money as high street banks.

More than 355,000* people in Scotland are credit union members.

Find your nearest credit union for more information.

* As of March 2014

 

Dangers of High Interest Lending

Borrowing more money is usually not the best way to deal with debt. Although high cost short-term cash or payday loans may seem convenient, they can be very expensive and lead you into a spiral of debt.

If you can’t make the repayments on a payday loan on time you could end up owing the outstanding balance plus interest, fees and charges. Some payday lenders allow you to borrow more money or ‘rollover’ your loan, but this might only make the problem worse. After all, if you weren’t able to pay back in the first month, making the payment in the second month is unlikely to be any easier.

Although there are restrictions on how many times a lender can allow a rollover, if you have more than one loan, debts can very quickly mount up and start to weigh you down. The best thing is to look around for more affordable forms of lending and think carefully about your reasons for borrowing. There might be alternatives and we can help you find them.

If you have a bank account, you may be able to agree an overdraft – it’s better to talk to your bank about setting one up rather than waiting to go overdrawn as this may lead to financial penalties. If you are on a low income and need money in an emergency, you may be able to get a budgeting loan from the Social Fund to pay for essentials. There may also be help in your local area, for example, through charities or food banks.

Financial Conduct Authority (FCA) is responsible for the regulation of loans and lending, which includes payday loans. Here you can find out all about what they are doing to regulate the payday loan industry.

Find out what other options are available

Community Development Finance Institutions

Community Development Finance Institutions are social enterprises that support communities by providing affordable finance that would otherwise not be available. By making loans, they are able to recycle this finance again and again into neighbourhoods where it is most needed. 

These organisations lend money to those unable to get finance from high street banks. They fill the gaps in mainstream lending, addressing market failures and offering an affordable alternative to high interest doorstep lenders. Many are also Community Interest Companies and are required to reinvest any profits in the organisation and demonstrate their services serve a community purpose.

In Scotland, there is one Community Development Finance Institution offering personal loans to individuals living within a 25 mile radius of Glasgow, trading under the name Scotcash. Go to the Scotcash website to find out more.