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New scheme tackles loan shark lending

New scheme tackles loan shark lending

Category: Loans

Updated: 23/09/2010
First Published: 23/09/2010

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

A new Government-backed scheme promises to offer a helping hand to those who face a constant battle when trying to access finance.

The pilot scheme, called My Home Finance, aims to provide affordable loans to the financially excluded.

It is hoped that the scheme will help those people who are often forced to take out high-interest loans with doorstep lenders, payday loan companies and illegal loan sharks.

Ten branches have already been set-up by the National Housing Federation (NHF) in the West Midlands, with plans to open branches across England.

Customers will be able borrow relatively small sums of about £500, at an initial APR of 29.9%.

This APR will rise to 49.9% when the scheme is launched throughout England in April, in order to cover the expansion costs.

Although these rates seem unfavourable when compared to those offered by banks and building societies, they will give some much-needed relief to the estimated 2.7 million people who have no choice but to borrow from doorstep lenders and loan sharks, which typically charge between 200-2,000% APR.

Around 2.5 million people borrow from doorstep lenders, with a further 200,000 are estimated to borrow from loan sharks. A majority of those financially excluded are social housing tenants.

"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," commented NHF chief executive David Orr.

My Home Finance will also be encouraging people to manage their money better by offering debt advice and helping them to open up a bank account.

"It is great to see new ideas coming through to help the poorest in our society access credit and advice on how to avoid unsustainable levels of debt," said the secretary of state for Work and Pensions, Iain Duncan Smith, who launched the scheme at the NHF's annual conference in Birmingham.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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