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BBC News - Affordable loans plan is unveiled
A new not-for-profit lending scheme is being unveiled aimed at giving manageable loans to financially excluded people.
A pilot scheme has been set up in the West Midlands called My Home Finance, in the hope of diverting people away from borrowing from loan sharks. However, the interest being charged is higher than the maximum by law that credit unions can charge. It will charge 29.9% APR in the pilot scheme, rising to 49.9% APR in April.
Credit unions, set up to encourage people on low incomes to save, are allowed to charge no more than 26.8% APR - the annual percentage rate - with many credit unions only charging 12.7% APR.
Target
My Home Finance has been set up by the National Housing Federation (NHF), with 10 branches opening as part of the pilot project. Customers would have to go through a 45-minute interview to check they would have a realistic chance of repaying the loan before being allowed to borrow sums of about £500. This would then have to be paid back weekly. People would also be offered debt advice and help in opening a bank account - in a bid to prevent them using loan sharks.
Rates in the legitimate doorstep lending industry tend to be higher, but one of the leading lending companies - Provident - said it welcomed the pilot project. "This initiative broadens further the range of credit options available to those on lower incomes and introduces yet more competition, which we welcome," a spokesman said.
Setting up
The "vast majority" of the set-up costs have been met by the Department for Work and Pensions, according to the NHF. There has also been input from local housing associations and the Royal Bank of Scotland. Some 38 members of staff have been taken on and four branches - in Hereford, Worcester, Walsall and Northfield in Birmingham - are up and running. By the end of October, others will be open in Coventry, Tamworth, Dudley, Wolverhampton, Birmingham city centre and Erdington. They will be run by East Lancashire Moneyline. "By offering fair loans at fair prices, we hope to offer an alternative to both loan sharks, who cynically prey on hard up families, and doorstep lenders, who are all too willing to lend cash to the desperate at hugely inflated rates of interest," said NHF chief executive David Orr. The Federation is planning to open branches across England and is aims to write up to 150,000 loans to people on lower incomes in the next 10 years.
However, the cost of these loans, through interest, will be increased to 49.9% to cover costs when the scheme is expanded across England, a spokesman said. Mick McAteer, of the Financial Inclusion Centre, said: "While this is a welcome step, it should be put in context. We estimate there are four million people in the UK without access to mainstream affordable credit. "More needs to be done to give consumers a real choice." He said the poorest people in the UK had very little choice of loan providers. The scheme is being launched by Work and Pensions Secretary Iain Duncan Smith on Thursday.
A new not-for-profit lending scheme is being unveiled aimed at giving manageable loans to financially excluded people.
A pilot scheme has been set up in the West Midlands called My Home Finance, in the hope of diverting people away from borrowing from loan sharks. However, the interest being charged is higher than the maximum by law that credit unions can charge. It will charge 29.9% APR in the pilot scheme, rising to 49.9% APR in April.
Credit unions, set up to encourage people on low incomes to save, are allowed to charge no more than 26.8% APR - the annual percentage rate - with many credit unions only charging 12.7% APR.
Target
My Home Finance has been set up by the National Housing Federation (NHF), with 10 branches opening as part of the pilot project. Customers would have to go through a 45-minute interview to check they would have a realistic chance of repaying the loan before being allowed to borrow sums of about £500. This would then have to be paid back weekly. People would also be offered debt advice and help in opening a bank account - in a bid to prevent them using loan sharks.
Rates in the legitimate doorstep lending industry tend to be higher, but one of the leading lending companies - Provident - said it welcomed the pilot project. "This initiative broadens further the range of credit options available to those on lower incomes and introduces yet more competition, which we welcome," a spokesman said.
Setting up
The "vast majority" of the set-up costs have been met by the Department for Work and Pensions, according to the NHF. There has also been input from local housing associations and the Royal Bank of Scotland. Some 38 members of staff have been taken on and four branches - in Hereford, Worcester, Walsall and Northfield in Birmingham - are up and running. By the end of October, others will be open in Coventry, Tamworth, Dudley, Wolverhampton, Birmingham city centre and Erdington. They will be run by East Lancashire Moneyline. "By offering fair loans at fair prices, we hope to offer an alternative to both loan sharks, who cynically prey on hard up families, and doorstep lenders, who are all too willing to lend cash to the desperate at hugely inflated rates of interest," said NHF chief executive David Orr. The Federation is planning to open branches across England and is aims to write up to 150,000 loans to people on lower incomes in the next 10 years.
However, the cost of these loans, through interest, will be increased to 49.9% to cover costs when the scheme is expanded across England, a spokesman said. Mick McAteer, of the Financial Inclusion Centre, said: "While this is a welcome step, it should be put in context. We estimate there are four million people in the UK without access to mainstream affordable credit. "More needs to be done to give consumers a real choice." He said the poorest people in the UK had very little choice of loan providers. The scheme is being launched by Work and Pensions Secretary Iain Duncan Smith on Thursday.
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