MSE News: Government-backed lender launched to help low earners

ElkyElky

They should be encouraged to save, not take out more debt. £1 a week from their benefits is all it takes. If they can't even afford to save a few pound a month, then they should definitely not be taking on loans and whatever other schemes they'll come up with.

If the Government is so concerned about people borrowing from door step lenders, then they should do something about it like putting a cap on the maximum amount of interest they can charge. Whoever thinks up these ideas need shooting.

davidgmmafan

"What's wrong with credit unions? They charge lower interest, and you have to save with them first, to prove you can manage your finances.
You've answered your own question."

Ok so the problem with credit unions is that they encourage saving? You would've thought that is a desirable thing, which would go a long way to preventing the mess we're in from happening again.

My first thought was that the APR seemed high, but on modest sums I guess it won't be as bad as it sounds and IS low compared to your average leg breaking lender. The main reseveration I have is credit unions already do this, surely the government could support them if it wanted to do something?

The terms of a credit union aren't exactly unfair, they lend a multiple of what you have saved. The one near me also provides some kind of free life cover, so they seem to be a worthwhile exercise. Not really sure that this is, unless there is a particularly bad problem with loan sharks or doorstep lenders in a given area.

Paul_Herring

davidgmmafan wrote: »

"What's wrong with credit unions? They charge lower interest, and you have to save with them first, to prove you can manage your finances.
You've answered your own question."

Ok so the problem with credit unions is that they encourage saving?

No, the problem is that the people that this is aimed towards is those who can't/won't save or manage their finances.

premierfella

On the credit union debate, this does seem like a step change from the previous government.

As I understand it, many "location-based" credit unions appear at the moment to remain solvent largely because of funding coming from the DWP via the Growth Fund, which allows organisations such as those credit unions to make loans they might otherwise refuse based on credit scoring. My Home Finance seems to be targeted at similar "customers" (some credit unions already make small loans without an existing savings history with the credit union I believe).

Has there been any announcement yet as to whether the current government plans to provide any further Growth Fund money to support financial inclusion after 2011?

iolanthe07

How on earth are they going to avoid making a profit?

They may not make that much of a profit because quite a high proportion of borrowers are likely to default on their repayments, given the demograph they are targeting.

Premier_2

millym wrote: »

...What's wrong with credit unions? They charge lower interest, and you have to save with them first, to prove you can manage your finances. ...

That was my thought too

Yes people have to show some maturity and responsibility to money before a credit union will lend (i.e. they have to save a bit first), but it was irresponsible lending that lead to the recent economic turmoil.

Hasn't this government learnt from that mistake?

Premier_2

...If you borrow £500 over three years at 10% it costs £80 in interest. At 29.9% over a month, it will cost £12...

How misleading. I would have hoped for something much better from MSE (even if they are publishing a PA item), by comparing like with like at least.

e.g.
If you borrow £500 over three years at 10% it costs £80 in interest. At 29.9%, it will cost £263 !!! :eek:
(plus of course the initial capital repayment)

so perhaps even better:

If you borrow £500 over three years at 10% it'll cost £16.13 per month (total of £580). At 29.9% it will cost £21.20 per month (total of £763)

immoral_angeluk

I work for a CAB very close to the areas these have just opened. I expect to see 'My home finance' added to the usual suspects I deal with everyday fairly soon...

PNPSUKNET

In some ways its good, it stops people going to the likes of provident. I do think though that they need to be carefull

~Brock~

I see Royal Bank of Scotland are involved, which is understandable as they bring to the table some expertise of the 'not for profit' business model......
























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