New loan scheme targets low-income customers

Getting a loan has long been a challenge for those on low incomes. Shunned by the mainstream banks they often have to rely on doorstep and payday loan firms charging extortionate rates of interest.

But a new scheme launched by the Government last week and run in collaboration with RBS, 26 UK housing associations and the Wales Foundation will allow access to loans to people on low incomes or with a poor credit history. The My Home Finance initiative will start in the West Midlands in October and roll out across the country next year. The plan over the next 10 years is to make 150,000 loans available to people ignored by the banks.

Interest rates charged will be higher than standard personal loans, but at an average rate of 29.9 per cent it's far lower than would be normally on offer from doorstep providers. "This is a welcome and much-needed initiative, providing an alternative source of credit for those who find themselves excluded from mainstream finance," said Andrew Hagger from Moneynet.co.uk. "The new scheme will not be a soft touch and applicants will have to undertake a face-to-face interview to discuss their financial position in detail."