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The worst (and best) ways to borrow if you’re broke

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It’s no secret that lenders have been known to target the people who can least afford to borrow money, but they are rarely explicit about it.

Not online broker ‘Loans For Poor People’ though, a name so candid I briefly wondered if it was a spoof.

“Easiest Cash Solutions Specially Designed For The Deprived”, shouts the website.

“Apply and Enjoy An Instant Approval!” it adds lower down.

“Since we understand how precious your time is, we do not follow any credit checking process on our applicants,” the website enthuses.

More worryingly from my perspective, it’s hardly promoting responsible lending.

“We are not at all bothered about the way in which you are going to spend this money,” it assures readers, adding that borrowers can access loans of up to £1,500.

Of course, there are many good reasons for people on a low income to take out a loan – urgent home improvements, for example, or a new boiler. But if you’re in this position then a high interest loan arranged through a website is unlikely to be the best bet.

The costliest loans for poor people

Despite that, there are worse loans you might be tempted by if you’re on a low income or have a poor credit history.

Doorstep lenders
Arranging a loan through a doorstep lender can be one of the most expensive ways to borrow – and there’s evidence that some lenders encourage customers to stay in debt.

Loan sharks
But at least doorstep lenders are licensed. If a doorstep lender offers you a loan but doesn’t show you a license then they may well be an illegal loan shark, and they are dangerous. These people often target desperate families, particularly at Christmas.

They seem friendly at first but borrowing from then can be an expensive error. The Money Advice Service reports that one woman who borrowed £500 ended up repaying £88,000. That’s just crazy.

Payday loans
Even though they charge an obscene amount of interest, payday loans can be useful on some rare occasions.

For example, if you need cash in an emergency and had no other option then a payday loan can be the right product, as long as you know you can repay it at the end of the month. It’s certainly better than falling into the clutches of a doorstep lender.

But those situations are few and far between – yet payday loan companies market themselves unscrupulously to people who are simply a bit short of cash. “Why wait for payday?” is the slogan of one payday loans broker that recently hired former bankrupt Kerry Katona to front its advertising campaign.

So if you’re on a low income and you have a poor credit rating, how can you borrow money if you need it?

Real loans for poor people

Crisis loan
If you face a real emergency, like a broken boiler or need to replace a door following a break in, then you may be able to qualify for an interest-free Crisis Loan. The amount you can borrow will depend on why you need it and how much money you have in savings.

Decisions can be made on the same day and payment can be within a few hours. Apply through your nearest Jobcentre Plus, which you can phone on 0800 032 7952.

Budgeting loan

If it’s not an emergency, then you’re unlikely to be able to qualify for a Crisis Loan. However, there is still another official option. Budgeting loans are for essential purchases like rent, furniture or clothes.

Again, they are interest-free so you only repay what you’ve borrowed, but you need to have been receiving income-related benefits for at least 26 weeks to qualify. You can download the application form and then take it to your local Jobcentre Plus.

Credit unions
A credit union is a small-scale community banking organisation – a bit like a cross between a co-operative and a bank. They don’t make any profit, instead they use any income to improve services for members.

Sometimes credit unions serve local areas, sometimes they are for workers in a particular profession or even people who attend the same church. You can find a suitable union through the website 

The interest charged by credit unions varies, but most will charge average interest of 1% a month, according to the Money Advice Service. They also encourage members to save and offer financial advice. Many even provide free life insurance so that your debt would be repaid if died before you’d finished it.

You can read more about borrowing or saving through a credit union in our article: Credit unions: Banking without the bankers

What do you think? Would you borrow from a company calling itself Loans For Poor People? Are low-earners being exploited or do they need services like this because banks don’t meet their needs? Share your thoughts in the comments below.