As the number of coronavirus cases in the UK surpass 165,000, Brits may be growing increasingly concerned about the impact the pandemic will have, not just on their physical health, but also their finances.
With unemployment rising and higher than the recession of 2008, thousands of businesses have closed up shop and made drastic cuts to survive the current lockdown measures. With the unemployment rate rising by such a drastic amount, many have started to struggle financially, and look for support where they can.
Whilst it might be tempting to consider a high cost loan, this should be avoided as it may lead to greater financial dependency and a spiral of debt. This includes high cost loans such as payday loans, logbook loans, guarantor loans or anything where the APR is higher than 50%.
What Are the Disadvantages of High Cost Loans During COVID-19?
Being commonly referred to as high-cost short-term (HCST) lending, it comes as no surprise that this type of loan can be considerably costly for the borrower, as it’s renowned for coming with high interest rates to be paid off in a considerably short period of time.
Taking out such a costly and short-term loan during a time of financial uncertainty could be a devastating move. If you are already struggling to make ends meet during COVID-19, you may find it even more difficult to keep up with repayments on a payday loan, which could subsequently lead to a spiral of debt, and damage your financial situation further during this already trying time.
Many payday lenders have even stopped offering loans to new borrowers, concerned with the impact coronavirus has had on their ability to carry out income and affordability checks.
Alternatives to Payday Loans
If you are in need of financial assistance, there are a number of government schemes helping people and businesses during the coronavirus. This includes business grants, at a basic level of £10,000 or a full business interruption loan of up to £5 million.
In terms of consumer credit, you can look at using 0% credit cards and currently vendors are able to offer up to £500 free overdraft – or payment holidays for up to 3 months.
In terms of lenders, there are a number of low-cost lenders that avoid the potential risk of debt building up by charging no late fees including Fund Ourselves and Wagestream.
Elsewhere, you can consider borrowing from family and friends or using a local credit union which charges 26% APR.