Ignore payday loans to better credit score
The Independent, 18 Dec 2014
Payday loan providers continue to dominate the headlines for all the wrong reasons, yet still many people don’t realise there are far cheaper ways to borrow money, even when your credit rating isn’t the best.
More needs to be done to raise awareness of alternative borrowing options and the dual benefit they provide. Not only do they charge a fraction of payday rates but they can also help you start to improve your credit score in the process.
To rebuild your credit status, you need to show that you can manage a credit card in a responsible manner, and by making payments on time every month then over time your credit score will gradually increase.
Paying the full statement balance each month is even better as you’ll improve your credit score without paying any interest charges in the process.
Another cost effective option is a guarantor loan with fast growing provider Amigo, offering credit of between £500 and £5,000 at a representative APR of 49.9 per cent.
To qualify for an Amigo loan you need to find a creditworthy friend or relative to act as guarantor for your loan. This means that if for some reason you are unable to pay, then the guarantor becomes liable for the outstanding balance.
Again the interest rate is a fraction of that charged by payday providers, plus it offers flexible terms, including the option to make additional ad hoc overpayments without a financial penalty. Amigo also feeds back your payment history to the credit reference agencies, so again, paying on time every month is another step towards a healthy credit score. Looking at the same example of borrowing £750 over 12 months, Amigo at 49.9 per cent APR would cost you £77.29 per month and total interest charges of £177.48, much less of a drain on your bank account than the fast cash payday option.
Andrew Hagger is an independent personal finance analyst from www.moneycomms.co.uk
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