Don't pay the doorstep lenders
A NEW official report reveals that some of the poorest members of society are paying the most to borrow money.
The Competition Commission says doorstep lenders overcharge by £9 for every £100 they borrow. And while mainstream loans are available for less than 6%, people on low incomes borrowing small amounts for a short time can be charged as much as 100%.
The biggest problem for people who do not have access to bank lending is that the home credit market is dominated by just six companies, each of which has a stranglehold over its own geographical area. One lender, Provident Financial, accounts for well over half of all doorstep lending business.
The Competition Commission has threatened to impose price caps if the companies do not cut their charges. But what can people do in the meantime?
One answer is to join the local credit union. These are financial co-operatives owned and controlled by their members who pool their savings so as to provide the funds for low-interest loans.
Credit unions rent money from their savers and pay them a return known as an annual dividend. This money is lent out to other members, who pay interest on what they have borrowed but at a fraction of the rates charged by doorstep lenders.
For example, a credit union would charge just £1.62 for lending £100 over three months, or £33 to borrow £500 repaid over a year.
The movement has come a long way from its early days though it retains its core purpose – helping people who would otherwise be excluded from financial services.
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There are around 400 credit unions all over Britain which are regulated by the Financial Services Authority, which also regulates banks and building societies and all other providers of financial services.
And, like users of banks and building societies, members of credit unions with savings are protected by the Financial Services Compensation Scheme. If a credit union went bust, the FSCS would repay all the first £2,000 of savings and 90% of the rest, up to £33,000.
Credit unions first came into being more than 100 years ago. Today they offer a range of services their founders could not even have dreamed of. Since January, they have been allowed to offer increased savings and loans limits. Paying more to savers and lending bigger sums over longer periods.
Some credit unions offer Child Trust Funds, mini cash Isas, and the movement is planning to offer members debit cards and a direct debit service in partnership with the Co-operative Bank.
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Following a successful trial run, all credit unions can now offer plastic cards that can be used to shop at Argos. Spending is limited by the amounted of money loaded on to each card, which earns a 5% bonus, paid for by Argos.
Mary Henderson, president of the UK credit union movement, says: 'With increased funds to lend on to people who would otherwise suffer at the hands of extortionate lenders, credit unions will make sure more and more people can control their finances.'
To find out more about credit unions write to ABCUL , Holyoake House, Hanover Street, Manchester M60 0AS (tel: 0161 832 3694) or visit the website www.abcul.org
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