Finding a loan that you can afford to pay back PDF Print E-mail

loanFinding a loan that you can afford to pay back

There are plenty of choices available to borrow money from all sorts of sources and some are more expensive than others. You need to know how much you are paying on a regular basis e.g. weekly or monthly, but equally important you need to know how long you will be paying and how much you will be paying in total. The best deal may not be the cheapest weekly amount to be repaid.

Before we look at some of the costs involved borrowing money a first step would be to apply to the Social Fund for and loans which don’t charge interest at all. There are two types of loan (budgeting and crisis loans) and they are normally repaid by a direct deduction from weekly benefit. If the person stops receiving benefit then they still owe the money and it needs to be repaid.

  • Budgeting loans are only available to those getting income support (IS), income-based Jobseekers Allowance (JSA) or pension credit (PC) for at least 26 weeks. The type of things they can help with are furniture, household equipment, clothing, footwear, travelling expenses and advance rent. Find out more about budgeting loans and apply on 0845 604 3719
  • Crisis loans may be made if someone has an emergency or disaster and don’t have enough money to meet immediate short-term needs. You don’t have to be receiving a benefit to get a crisis loan but you still will have to repay it. There is no set amount for a crisis loan and will depend on your individual circumstances. Find out more about crisis loans and apply on 0845 604 3719

Banks

Many people would think about trying a bank to borrow money but banks are currently not seen as providers of small loan amounts (under £1000) which means they offer limited help to the sort of financial help that many customer generally need most so they have been left out of the table below.

Some customers will have a good relationship with their bank and may be able to borrow money in the form of an overdraft. An overdraft is an arrangement where the bank will allow a customer to ‘overdraw’ their account up to a certain amount. In other words you take out of your account more money than you have in it. Repayment of the overdraft is made as and when money is paid into the account, usually reducing the overdraft amount over a period of time. It is important to agree any overdraft with the bank before taking this option, as banks will charge you if they haven’t given their permission or ‘authorisation’. Recently a major high street bank was found to be charging an APR of 365% for an overdraft that had not been agreed, which makes them more expensive than many doorstep lenders.  

Interest rates and charges – APR's

The repayment information for any loan is shown on a borrowing agreement by the APR which you can use to compare different offers against each other. Every loan agreement should clearly display it as a percentage and generally the lower the better. The calculation of the APR can be quite complicated. The Consumer Financial Education Body website www.moneymadeclear.org.uk can help you if you really want to try it out

Listed below are some examples for a £300 loan which you can compare and see the differences in APR’s and how they affect the total amount paid over.

Lender

Weekly

Total

Total Interest

APR Rate

Loan Shark

£55.20

£2870.40

£2570.40

1000%

Doorstep lenders

£10.50

£546.00*

£246.00

272.40%

Moneywise Credit Union

£6.59

£342.79

£42.79

26.82%

Five Lamps

£6.57

£341.64

£41.64

29.9%

Places For People

£6.48

£336.72

£36.72

21.9%

Loans taken out over 52 weeks (50 weeks for Provident) – figures from websites
* Includes Optional Service Cover

As you can see there is quite some choice available in the Tyneside area for more affordable credit and really there is no need to go to doorstep lenders. Below is information provided for each loan provider.

Moneywise Credit Unions

A credit union is a non-profit financial institution that is owned and operated entirely by its members. Credit unions provide financial services for their members, including savings and loans. Each credit union has a ‘common bond’ which may mean to join you have to work or live in a particular area or work for the same employer, or who belong to the same institution, such as a trade union or church. For Moneywise members have to live or work within Newcastle upon Tyne and Longbenton to become a member, and then save a regular amount each week, fortnight or month for a period of time before being eligible for small starter loans.

They can be contacted on 0191 276 7957

Places For People

Places For People are one of the largest housing management companies in the UK, and offer instant loans to tenants living within NE4 and NE6 post code areas which have been recognised as areas where additional affordable credit should be made available. Their APR interest rate is 21.9% and they offer loans from £300 upwards.

They can be contacted on 0845 603 6695

Five Lamps

Five Lamps is one of the largest community led enterprises within the North East and is also a registered charity. Similar to Place For People they can offer instant loans across the whole area.

They can be contacted on 01642 608316

Doorstep lenders

Legal doorstep lending is also called the 'home collection market'. You can borrow small amounts and pay it back weekly to an agent who will call at your home. The best known is Provident and it is their rate that is included in the chart above, but there are many others often charging higher interest rates.

Remember – the total amount you have to repay may be much higher than the amount you borrowed. You can get some idea of what loans are available in your area on www.lenderscompared.org.uk , which provides a comparison of APR’s.across the region.

Illegal Money lenders

Don't be tempted by the cash offered to you by an illegal money lender. Probably better known as Loan Sharks, they are unlicensed lenders, who operate illegally and will lend you money when nobody else will, but:

  • their rates will be very high and you may find it difficult to keep up the repayments;
  • you may be forced to get a second loan to pay off the first, causing your debts to spiral out of control;
  • They may try to persuade you to engage in criminal activity to repay your loan e.g. counterfeit goods, drug carrying, prostitution, etc.
  • they may use violence or intimidation to collect debts.

 

If you think you are a victim of an illegal money lender there is a team who can help you in confidence:

National Hotline Number: 0300 555 2222

SMS: text 'shark bait' (+ your message) and send to 60003

Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Please visit www.direct.gov.uk/stoploansharks for further information

 
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