We note with interest the demise of payday lender, Wonga which has gone into administration. It would seem that the fines imposed by the Financial Conduct Authority (FCA) for unfair debt collection practices, orders to repay over £35M to customers as a result of “unfair practices”, introduction of caps on administration charges and criticism over sky-high interest rates in excess of 4,000 per cent have finally taken their toll. They even suffered a data breach in 2017 and warned that personal data of up to 245,000 customers could have been compromised, incurring the wrath of the information Commissioners Office (ICO).

So what are the alternatives? Certainly people looking for loans should look carefully at the terms of the loan to make sure that the administration charges and interest rates are not exorbitant as is the case with many payday lenders. They should also consider whether these short-term loans are the answer to their financial problems. Taking out a loan for, say, £500 for a sudden unexpected expense like a car repair to be repaid when the next salary or benefit payment at the end of the month comes in means that there is £500 less to spend next month. And the temptation is to take out another loan for £500 plus the administration charges and interest that were incurred with the previous loan. This leads to an ever increasing debt spiral which is very difficult to get out of.

So what is our advice? Take out a longer term loan. Spread the repayments over several months, that way you don’t have to pay back all the money borrowed with your next salary or benefit payment. Look at ethical borrowers like Credit Unions – they are restricted by law to an absolute maximum interest rate on loans of 3% per month, just over 42% APR – the chances are that the interest rate charges will be even lower. There are no administration charges and loans can be paid back earlier with no penalty. For the full picture, why not visit our web site at www.cpcu.co.uk.

Steve Lademann
City of Plymouth Credit Union

Plymouth Social Enterprise Network
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