Well – there’s a headline that you don’t often see. So often reviled, blamed and accused of giant rip-offs with super-high interest rates and aggressive collection methods, the payday loan industry is not often praised for the service they offer.

 

And of course, there is much to be critical about – with the all too tempting advertising, slack credit checks and very quick to add-on charges and high interest rates. It’s no wonder that the Financial Conduct Authority made the payday loan industry a priority target when it assumed regulatory control of the finance industry.   But there is another side that may need telling in order to at least partially redress the balance. Or to put it another way – is it ever right to take out a payday loan?

 

I spoke recently to Claire – a single mum with 2 young children. She is dependent on benefits, and called one day in a state of near panic as her tax credit payment was about £100 less than expected. She had contacted them and they apologised for their error and the money would be made up to her within 14 days (hopefully). The problem for Claire was that £100 is a lot of money to be without and though the monthly bills had been paid, the cupboards, as they say, were bare.  Claire has no access to credit and no family support. She contacted a payday lender and borrowed £100. She was able to shop and feed herself and her children. The tax credits payment did arrive within 14 days and she repaid the loan plus £20 interest. There was mild resentment that the tax credit error had cost her £20, but great relief that there was a way out from a highly distressing situation. 

 

Clive needs a car for work. Not only does he live in a village with poor transport links, he also works shifts (at least one of which had no public transport option) and his place of work was split over 2 sites. It was part of the job offer that he could move between sites under his own steam. The MOT revealed a major issue with brakes and 3 tyres needed replacing. Quote for the repairs to get the car through the test was £500. Which he didn’t have. Poor credit history meant there was no other way than to take out a payday loan. He spread the repayments over 6 months and he paid back half as much again as he borrowed. A pretty steep interest rate. But crucially for Clive – he still has a car and a job.

 

Not necessarily the first port of call when a loan is required, but payday loans may well meet a need when the alternatives are far worse.