Payday loans have helped thousands of people out of a tight financial spot, but they also come with eye-wateringly high interest rates of up to 0.8% per day. To put that in perspective, if you were to borrow £200 for four weeks at a daily rate of 0.8%, you’d pay just under £45 in interest.
Text loans make it easier than ever to get your hands on these high-cost, short-term loans, but debt charities argue this could lead to irresponsible decisions. Is there such a thing as a loan that’s too easy to get?
Warning: Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk.
Please note: High-cost short-term credit is unsuitable for sustained borrowing over long periods and would be expensive as a means of longer-term borrowing.
A text loan is essentially a payday loan you can apply for via text message. You send one message to your lender via your smartphone, and it can approve your loan almost instantly, even if you have poor credit.
In your text, you simply state how much you want to borrow, and you can often get your hands on the cash within as little as 30 minutes to an hour. You’ll be notified via text when the funds have been transferred. This makes it quick and convenient to get the funds you need, wherever you are, without the need to speak to anyone.
Text loans work similarly to payday loans, with the main difference being the application process. You can usually borrow between £50 and £5,000, depending on your income and the lender. This typically needs to be repaid by your next payday, but some lenders let you borrow funds for much longer.
The first time you apply for a text loan, you’ll need to go through a similar application process to a standard payday loan, but after this, you can use the text service to get your loan. Certain lenders even go a step further and offer an automatic “top-up” for your bank account if your balance drops below a certain point that you set.
Payday loans can be useful for those who need speedy access to cash, but they’re extremely expensive, to the point where most other forms of finance are likely to prove more cost-effective. They aren’t suitable for sustained borrowing. As such, it’s always worth considering the other options first, like credit cards and personal loans.
Some debt charities believe that making it so easy to apply for a payday loan through your mobile phone could lead to more people making careless financial decisions. It’s also been claimed that text loans could make people more likely to use payday loans multiple times, even though this is a terrible financial strategy.
The counter-argument goes that customers bear responsibility for judging whether they should be taking out text loans, and providers are just making their product as accessible as possible.
To be eligible for a text loan, you usually need to meet the following criteria:
You might consider a text loan if you need cash fast, whether to cover an unexpected bill or to pay for emergency car repairs, for example. Funds can be transferred quickly just by sending a text.
Some lenders that previously offered text loans have now disappeared from the market. But lenders still offering text loans include:
These are just some examples – the list is growing all the time.
Yes, there are plenty of alternatives to text loans, and these are usually cheaper too.
Best of all, if there’s any way you can defer the expenditure, that’s always going to be your cheapest option (don’t use a payday loan to fund a night out, for example!). Real financial emergencies that can’t be put off do crop up, though. If none of these alternatives suit you, ask a professional debt advisor for assistance. The UK government set up the MoneyHelper to provide free guidance to people in situations just like this.
Using your mobile phone to apply for a loan makes it ever so easy, but this type of loan should only ever be used as a last resort. If you do need to borrow funds via a text loan, be sure to read the terms and conditions carefully and repay the money as quickly as you can – don’t be tempted to borrow even more if your lender offers a top-up, and don’t be tempted to extend your loan either.
It’s really the lender that wins here. The convenience of text loans makes it much easier for borrowers to slip into the habit of regularly taking out small, expensive loans from the same lender. The trouble is that high-cost short-term credit simply isn’t suitable for sustained borrowing.
In fact, you should only ever take out a payday loan to cover an unexpected financial emergency – and even then, only after considering cheaper alternatives. Using them regularly is a bad idea that’s likely to make it harder for you to improve your financial situation.
If you have decided to take out a payday loan, however, compare a good selection of lenders and take out the loan with the lowest overall cost – regardless of whether it comes with a text loan service – while ensuring the repayments will be affordable.
Browse our collection of payday loan guides, designed to answer all of your short term loan questions and help you find the right payday loan.
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