Seeking payday alternatives

“Swipe right for Mr Right” – this whole Tinder swiping thing has become part of culture these days. On the dating app you swipe left until you see someone who appeals, then right it is to meet your match.

Many of our money decisions should be the same: we should be swiping left most of the time and only going right when it truly works for us.

High-interest loan? Swipe left. Low-interest loan? Swipe right.

Under pressure

There should be no pressure to make a choice, ideally. The world’s most successful investor, Warren Buffett, compares his decision making to waiting for his pitch in baseball, with no need to swing. Unlike a game situation, he can wait all day until his pitch – his opportunity – comes in. The trick is to be prepared when it does.

Unfortunately, there are times we’re under pressure, especially when it comes to borrowing. Money gets short, which puts us in a tight spot. How many days until payday? We might even be counting the hours!

Payday lenders are not exactly famous for mates’ rates – if we turn to them in a jam, we’ll be paying for the privilege. Seriously, we’ll be paying. A lot.

It’s not like borrowing $50 from a friend and paying back $50 – they’ll be asking for more like $158 in return! Interest rates can run north of 500%.

Tools like Sorted’s debt calculator can help us run the numbers on the true cost of debt (and hopefully help us run for the door when the costs become too frightening).

Shocking numbers

Ideally we’d find alternatives to the high-cost payday options out there, but it’s not easy when we’re under the gun.

The most shocking number I’ve heard of late is $60 million. Or perhaps it’s $2.5 million. Both are unbelievable. But they’re both true.

The first figure is the amount of capital now available for microfinance loans with no or low interest. That’s right, some loans are without any interest at all. I’m sure you’ll agree, $60 million is a lot of dosh available to lend to people who have a low or limited income. And since that $60 million is capital, that means it can be loaned out again and again.

The second figure, $2.5 million, is the amount that has been loaned out to date – not very much at all. That still leaves at least $57.5 million available to help borrowers.

The microfinance option

Microfinance loans are not exactly alternatives to payday loans, since they’re best used for bigger purchases like cars or whiteware – necessities of life. But I can’t help but think that some of us would not have to turn to high-interest payday loans if our bigger loans for, say, cars were using the low-cost funds available.

We’d have less of our income going to pay nosebleed interest rates from deals that are just a punch in the face – financially speaking.

Microfinance borrowers have already ducked that punch and saved $1.4 million. That’s just on interest and fees.

If you’re looking to do the same, see nils.org.nz and stepuploan.org.nz. One reason that not much has gone out the door is that these loans are only available via Good Shepherd NZ at 20 locations. There is a small team of about a dozen people on the ground loaning them out.

Ngā Tangata Microfinance also has no-interest and debt-relief loans on offer – which means more viable alternatives to payday lenders.

Generally there is a very low awareness that these loans are even available, so we need to spread the word. If you or anyone in your close circle could benefit, don’t hesitate to hook them up. Let’s help people make the best decisions available.

For everything else, swipe left.