A new scheme has been set up to help ‘financially excluded’ people obtain affordable credit, with the aim of preventing them from falling prey to loan sharks and doorstep lenders.
The pilot scheme, unveiled in the West Midlands today, is called My Home Finance. Set up by the National Housing Federation (NHF) and backed by the Department for Work and Pensions, the scheme will initially offer loans at an APR of 29.9%, with rates rising to 49.9% APR in April 2011.
These rates are higher than the maximum that can be charged by credit unions (26.8% APR), but are still far lower than the rates attached to payday loans or charged by pawnbrokers.
The aim of the scheme is to help people who struggle to access ‘mainstream’ credit, but need to borrow. Currently, there are too few options available to people on low incomes or with bad credit histories, which has led to significant increases in the use of payday loans and pawnbrokers over the past few years.
Beating loan sharks
My Home Finance customers will have access to 10 branches opening as part of the pilot project, and will be interviewed by staff before being approved for credit. The aim is to help ensure individuals do not borrow more than they can afford to repay.
People will also be offered debt advice and help with opening bank accounts, in a further bid to combat the financial exclusion they face.
According to NHF, if the pilot scheme proves a success My Home Finance will open branches across England and write up to 150,000 loans to people on low incomes over the next 10 years.
David Orr, NHF chief executive, said: ‘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.’
Consider credit unions
Which? credit and debt expert Martyn Saville commented: ‘’The new scheme from My Home Finance could offer a more affordable and potentially safer alternative to the likes of loan sharks, although the APR of 49.9% from next April seems rather steep.
‘For consumers struggling to find affordable credit, an early port of call should still be your local credit union. These organisations lend to people with a common bond (such as living in a particular area or belonging to the same community group, church, union or employer). The interest rates charged are capped, so you’ll never get ripped off.’
Read our guide to your loan options for more help with obtaining affordable credit, including information on how to find your local credit union. Meanwhile, if you’re concerned you have a bad credit rating and are finding it difficult to borrow, read the Your credit report explained guide for help with checking and improving your file.
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