Mark Lancaster-fromthehouse: Credit Unions offer solution to debt

Mark Lancaster
Mark Lancaster

WITH the Christmas decorations now firmly back in their boxes and New Year in full swing, now is about the time when people start to turn their thoughts over to what it is they want to achieve in the year.

Top of most people’s list is trying to sort out their finances. The issue of lending has been in the national press over the past couple of weeks and it now has the attention of David Cameron, with his office recognising the problem of short-term lending at high payback rates.

This has led to a call for legislation to be put in place to protect those most vulnerable in society from getting into the vicious circle of loans and paybacks.

But while legislation is one route, should we not be doing more to promote Credit Unions as an affordable but less well known alternative?

Many people have been feeling the pinch with the rising food and energy prices and Christmas simply an added expense.

Rather than deny the family a ‘proper’ Christmas, for some the only solution has been to get a short-term loan to cover the costs. Even now with prices slashed in New Year sales the temptation to buy that new sofa for just a few hundred pounds may be too hard to resist for some resulting in a slippery slide of short term debt which many people don’t manage to get out of.

Lending from so-called-payday-lenders has increased dramatically over the past few years, with reports suggesting it has increased from £500m in 2007 to a whopping estimated £1.9bn last year.

This significant increase has been made easier by the tempting offers from the many online providers with claim that a loan can decided in a matter of seconds and the cash paid into your account in less than 15 minutes.

This impulsive borrowing however comes at a price with interest rates somewhere between 1,000 and 4,000 per cent APR on these loans. Of course, these are meant to be short term loans, lasting no more than a month, occasionally two, but there is no check as to whether people can afford to pay back the amount they are borrowing and for some they are simply getting loans to pay back other loans.

There are however options for those who find themselves in the situation of needing to borrow money, namely Credit Unions. Little known as they lack the advertising budget or flash websites of many of the commercial providers, there is however an impressive network of credit unions offering loans to members at very modest rates.

I met with the people who run the credit union in Milton Keynes, predominantly to become a member as they are a savings union as well as one offering loans, but also to learn about what the credit union offers.

Community based, they offer loans of up to £5,000 with interest rates of one per cent per month and a maximum of 26.8 per cent APR, which is significantly less than the payday companies whose APR rates are in the thousands.

Over the past five years Credit Unions have made around 500,000 loans to high risk borrowers, 80 per cent of whom are claiming benefits.

There are now 420 operating throughout the UK and many have been supported through the Growth Fund, which has enabled them to increase the amounts they lend and has allowed them to be more flexible about savers and borrowers.

The network is growing but awareness among the population remains low and more needs to done to ensure this very real alternative to pay day loans is used by those most in need

I would urge you to look into the real benefits joining the Credit Union can offer.

For further information on the Credit Union in Milton Keynes, call 01908 525086 or visit www.mkcreditunion.org.uk