Ethical alternative to payday loans
And when the retired teacher applied for a loan to make her cold house more energy efficient, her bank flatly refused it.
“The cold wind blew through the house, my energy bills skyrocketed, I needed to do the windows and walls,” she says.
“My bank couldn’t do anything to help because the computer said no.”
The collapse of the controversial payday loan company Wonga, which has become famous for its exorbitant interest rates that once hit 5,853%, has highlighted where people turn for loans when they are were refused by traditional banks. While lenders are now limited to a maximum interest rate of 1,500 percent per annum, this is still viewed by many as a sky-high sum. And while few will mourn Wonga’s passing, some truly fear that the decline of payday lenders will lead the vulnerable into the even more dubious world of illicit loan sharks.
That doesn’t have to be the case, however, as Ms. Hart-Bowman explains. After being rejected by major commercial lenders, she turned to Castle & Crystal, a credit union, one of the UK’s 292 non-profit ‘community banks’.
Like Victorian-era building societies, credit unions are owned only by their members and do not pay dividends to outside shareholders. They offer both savings accounts and loans, although they are often subject to geographic restrictions: Castle & Crystal, for example, is open to anyone living or working in the Borough of Dudley, in the Worcestershire; Walsave offers a similar service to Walsall, there is Six Towns in Sandwell and the City of Wolverhampton Credit Union for the Wulfrunians, and Fusion serving Cannock and Lichfield.
What credit unions can’t offer is the big budget ad campaign featuring cute senior citizen puppets.
John Harrower, who runs the Fairshare credit union, says it’s always a battle for credit unions to compete with multi-million pound commercial lenders when it comes to making people aware of what they are doing. make.
“We can’t compete with their marketing budget because we can’t charge the high interest rates they charge to pay for it,” he says.
Mr Harrower says when people find themselves in trouble with payday lenders it usually started out as a small problem that snowballed as the borrower struggled to meet the repayment terms.
“You usually find that these are multiple loans,” explains the managing director of the Fairshare credit union. “When people have problems, it’s usually not one or two, they have three, four or five.
“It usually starts when something happens, like a car breakdown or needed household items.
“They’ll go to the first source of money they can find, then something else happens, then they’ll take out another loan, using one payday lender to pay off another.
“We see ourselves as an alternative to a payday lender, but our interest rates are capped at 36% per annum,” he says.
Dharminder Dhaliwal, Managing Director of Castle & Crystal took inspiration from the payday lender book by adopting new technology to deliver quick decisions. Its new website features Wonga-style sliders that let people see what their monthly payments will be in an instant, and chief executive Dharminder Dhaliwal says a decision can be made in just a minute.
“Nowadays we can verify someone’s contact details electronically, we don’t need you to bring your passport or bank statements like you could have done 15 years ago,” Mr. Dhaliwal.
“People lead busy lives these days, and convenience is a big factor. “
What credit unions won’t do, however, is offer no-questions-asked loans. While credit unions will lend money to people who have been turned away by the big banks, each applicant will be carefully assessed to ensure they can repay the loan.
“If we know they can’t afford the loan, we help them get back on their feet,” says Dhaliwal. “We encourage them to save a little bit each month and then reapply in three months.” Castle & Crystal has also started a blog to save money, offering monthly tips to its members.
“We use technology, but with an ethical dimension,” says Dhaliwal.
“The new tool on our website makes it easier to access our services, but it is still a human being who has the final say on loan decisions, as the tool is only one factor in our process. decision making.
“The way the new lending tool is set up is so that many will get direct online acceptance for a loan, but many will also see a referral, which means it comes to us for review and we will help them get it right. regain financial health if we cannot give them a loan. “
Unlike payday lenders, credit unions generally do not offer 30- or 60-day loans.
“Our shortest loans are for three months,” Mr. Harrower said, noting that the interest on this one is a fraction of the cost of a 30-day loan from a payday lender.
“Payday loan companies want people to come back to them and borrow multiple times,” he says.
“We’re also more flexible about how long you need to pay off the loan.
“We make sure you can pay it off at an affordable rate, and if you have any difficulty, we’re flexible on how you can restructure it.”
At present, there are two million members of credit unions in the UK, who are said to have saved a total of £ 3 billion. They are still relatively small players in the financial services market, but have been strengthened in recent years after being endorsed by Archbishop of Canterbury Bishop Justin Welby and former Prime Minister David Cameron.
Mr. Dhaliwal said this is good news not only for the members, but also for the communities in which they live.
“For every million pounds we distribute, our members save 750,000 pounds in interest,” he says.
“That £ 750,000 stays in the area, it increases disposable income, it’s more money spent in shops and supporting local areas.”
* For more information on Castle & Crystal Credit Union, see the website chateauetcristal.co.uk or call 01384 817619.
For general information on credit unions or to find one in your area, visit abcul.org