Money Insider: Credit unions are the solution for emergency loans

 

Missing or being late with a couple of payments on a credit card may not seem much of a big deal to consumers at the time, but these financial indiscretions will damage their credit status and could lead to them paying through the nose for loans in the future.

Although the best buy tables are awash with personal loan rates below 10 per cent APR and countless credit cards advertising 0 per cent interest, people with a recent black mark or two on their credit record are unlikely to be able to take advantage of such competitive deals.

The real problem is that if your bank or building society declines your application for credit, you may end up paying an APR well into three figures to borrow from a non-mainstream lender.

The payday loans industry has grown rapidly during the economic recession, recognising that people are sometimes desperate for some financial breathing space and are seemingly prepared to pay well over the odds for credit.

Borrowing at sky-high rates on short-term loans of 30 days or less is becoming far more common, and now some lenders are targeting longer-term borrowing markets.

A quick look on the internet will reveal that loan brokers such as 12monthloans.co.uk are advertising unsecured loans for terms of 12 months at eye-wateringly high rates of up to 278 per cent APR.

If your own bank isn't prepared to lend to you and you're desperate to borrow money to help get the car through the MOT or get the central heating boiler fixed, then a one-year £500 "payday" loan could see you having to pay back £949 over 12 months.

The problem for borrowers with minor credit issues (we're not talking about serial defaulters with a number of CCJs) is that they don't realise there are other options available to them.

While consumers need to be aware of the importance of maintaining a good credit record, the Government should take a more active role to prevent greater numbers of consumers getting into serious debt problems through easy and expensive credit.

In March this year the Government announced it would make up to £73m available to expand and modernise credit unions over the next four years.

As part of this expansion programme it is considering making credit unions available to communities through the UK Post Office network. There are 465 credit unions in England, Scotland and Wales with more than 870,000 members. The value of loans made to members stands at £475m. However, more importantly, there is proof that they encourage people to save too, with more than £600m of credit balances held with British credit unions.

Mark Lyonette, the chief executive of the Association of British Credit Unions Limited, summed up the situation many people face: "Credit unions have shown they can provide the financial products and services that people on lower incomes need and want but often struggle to get elsewhere."

With Citizens Advice reporting a fourfold rise in the number of people with payday loans coming to it for debt advice in the past two years, the promotion of the credit union alternative needs ramping up, and fast.

Interest rates up as euro crisis bites

The eurozone crisis is starting to affect the man in the street.

The knock-on effect means mortgages are getting dearer, while on the flip side, savers are seeing higher interest rates.

The latest issue of the online instant-access account from AA Savings (Internet Extra) sits proudly at the top of the best buys paying 3.2 per cent gross/AER.

There is the customary bonus element included in the rate (2.7 per cent fixed for 12 months in this case), but it's not really asking too much for customers to make a note in their diary, iPhone or even on the kitchen calendar to switch their nest egg elsewhere when the bonus expires.

Banks are often criticised for their use of promotional bonuses, but a little organisation on your part means you can beat them at their own game.

The AA account is operated online and allows unlimited, penalty-free, instant access to your funds with interest paid annually.

Considering the best one-year, fixed-rate bond was only paying 3.25 per cent at the start of 2011, consumers have benefited from increased competition, and with banks looking to draw in more money via their branches, maybe we'll see some even better deals for beleaguered savers in the next month or two.

Andrew Hagger – Moneynet.co.uk

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Selby Jennings: Oil Operations

    Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

    The Jenrick Group: Night Shift Operations Manager

    £43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

    SThree: Trainee Recruitment Consultant - LONDON

    £20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

    Day In a Page

    Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

    'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

    Yazidi girls killing themselves to escape rape and imprisonment
    Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

    Ed Balls interview

    'If I think about the deficit when I'm playing the piano, it all goes wrong'
    He's behind you, dude!

    US stars in UK panto

    From David Hasselhoff to Jerry Hall
    Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

    Grace Dent's Christmas Quiz

    What are you – a festive curmudgeon or top of the tree?
    Nasa planning to build cloud cities in airships above Venus

    Nasa planning to build cloud cities in airships above Venus

    Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all
    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there