Avoid high-cost credit with these alternatives to doorstep lending and rent-to-own schemes
Millions of families use high-cost credit but there are alternatives such as credit unions and buying second-hand furniture
MILLIONS of families turn to high-cost credit every year to help buy new furniture or pay bills - but there other solutions.
The firms are used by people with poor credit ratings who may be unable to borrow from normal banks or get credit cards.
Before turning to a high street rent-to-own firm or doorstep lender it is worth researching the alternatives. We explain.
Credit unions
You may be able to borrow from a local credit union. These are small not-for-profit groups that help people save and borrow money.
Sometimes they are for people living in a particular community or for people who work in a particular type of job.
You can find out which credit union you are eligible to join by searching or by calling the Association of British Credit Unions Limited (ABCUL) on 0800 015 3060.
Why we want to Stop The Credit Rip-Off
WE never want you to pay more than double the amount you've borrowed - whether it's for a new sofa or a loan to help pay your bills.
That's why The Sun has launched a campaign calling for a cap on the total cost of rent-to-own loans and doorstep lending at double the original price or loan amount.
In a major victory for our campaign, the City watchdog, the Financial Conduct Authority, is now consulting on the move, that could come into effect as soon as April 2019.
A similar cap was introduced for payday loans in 2015 and since then the number of people struggling with unmanageable debts to those lenders has more than halved, according to Citizens Advice.
People on the lowest incomes, living in the poorest places, are paying a poverty premium - up to 7 million people have resorted to high-cost credit, according to the Department for Work and Pensions.
People whose wages or benefits don't stretch far enough need to borrow from rent-to-own or doorstep lenders to help pay for things such as an unexpected bill or to furnish their homes.
These come with exorbitant rates of interest - more than 1,500 per cent in some cases of doorstep lending.
It is scandalous that one mum who borrowed cash to help keep a roof over her family's head ended up paying back over THREE times the original amount.
It's time to stop the credit rip-off.
Here's what we demand:
Rent-to-own
- Cap on all repayable costs at double the item list prices (including fees, add-ons and interest)
- Ban on incentives for all sales staff
- Ban on discounts for existing customers to tempt them into more credit
- Companies to publish example interest rates and costs on all payment options
Doorstep lending
- Cap at double the original amount borrowed
- Stricter affordability checks
- Ban on discounts for existing customers to tempt them into more credit
It's time to Stop the Credit Rip-off.
Some unions require that you have already saved money with them before you can take out a loan, but others don’t.
Make sure that you still check what the interest rate is - they can be as low as 6 per cent or up to 43 per cent.
Have you ever had a problem with a rent-to-own firm or doorstep lender? Tell us your story! Email: Money@the-sun.co.uk
Ask for an advance
If you are struggling before payday, ask whether your employer could give you an advance on your wages.
If you are on benefits and facing a wait for your first payment you can speak to your Jobcentre Plus adviser to see if they can arrange a short-term advance that will have to be paid back when your benefit comes through.
Check your benefits
Make sure that you are getting all the benefits that you are entitled to, using this calculator from the charity .
You can also find out whether you are entitled to any charity grants using its .
You might qualify if you have certain health conditions or disabilities or if you live in particular areas– so it is worth searching.
Look at getting second-hand furniture for free or cheap
If you're after a new sofa or washing machine then it might be worth considering whether you can buy it second-hand.
Use websites like Freecycle to find items for free in your local area.
You'll also be able to find goods nearby on local Facebook groups, eBay and Gumtree.
Boost your credit score
If you've been in financial difficulty before, or you've got no history of borrowing, you could find that you're unable to get accepted for any credit at all.
There are a number of things you can do to improve your chances and get back on track, like applying for a credit boosting card.
HOW YOU CAN IMPROVE YOUR CREDIT SCORE
WHILE there is no credit blacklist which bans people from any sort of borrowing at all - if you have struggled in the past you may find lenders won't consider you.
Here are tips to help you improve your rating:
- Don't make too many credit applications - Making lots of requests in a short period of time can be seen as a sign of financial distress - and each application will be recorded on your file. Use a "soft-search" eligibility calculator to show how likely you are to be accepted.
- Always pay your bills - Late payments are also recorded in your file so make sure you pay your monthly bills on time including utility and credit cards.
- Pay down your debt - Try and cut down your existing debt before applying for new credit as lenders may be reluctant to lend to you if you already owe a large amount of debt.
- Use a credit-builder credit card - These cards tend to have high interest rates compared to normal cards but if you can show you're a responsible spender with them, it can improve your chances in the eyes of lenders.
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