Millions of households ‘rely on high-cost credit’ for everyday expenses, charity warns
Debt charity StepChange estimates that last year 1.4million lower-income households resorted to high-cost credit such as rent-to-own agreements, payday and doorstep loans, up from 1.1million in 2016
MILLIONS of the UK’s poorest people resort to high-cost credit to meet everyday living costs, according to new research.
Debt charity StepChange estimates that last year alone 1.4million lower-income households resorted to high-cost credit like rent-to-own agreements, payday and doorstep loans, up from 1.1million in 2016.
Last week, The Sun launched its campaign to Stop The Credit Rip-Off to help those struggling to repay high-cost debt, by calling on the financial regulator to extend a cap on the total cost of credit.
The StepChange charity today warns that millions of families are relying on credit with sky-high APR rates of up to 1,557 per cent, putting pressure on their already tight budgets and leaving them vulnerable to debt.
StepChange also highlighted the gap in the market for low-income families when it comes to alternatives to high-cost credit - and options to suit their needs.
More than 8 million people live below the minimum income standard - which is set at £17,900 per year for a single person or £40,600 for a couple with two children.
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.
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 and 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.
A further 11 million people are living on less than 75 per cent of the minimum income.
The charity claims the government and city watchdog The Financial Conduct Authority need to work on solutions that would work for each of these groups.
It highlighted a scheme in Australia that is a joint initiative between the government and National Australia Bank delivered through local providers to offer ultra-low-cost credit.
It's time to Stop the Credit Rip-off.
Grace Brownfield, senior public policy advocate at StepChange, said: “We must undoubtedly keep expanding the provision of credit unions and similar, but we need to look beyond this too.
“The Government and the FCA need to look creatively at working with businesses to provide low- and no-interest loans, learning from successful schemes in Australia and elsewhere, while recognising the need for the welfare system to provide better emergency support for those who need it.
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“Such an approach could truly transform the options available to those on low incomes and break the vicious debt spiral that high-cost credit all too often creates.”
Around 7million people in the UK resort to high-cost credit to help make ends meet, and many of them end up paying more than double what they borrowed in the first place.
MPs, peers and campaigners from across the political spectrum have welcomed The Sun's campaign and urged readers to get behind it.
Alternatives to high-cost credit
IF you're in serious money trouble then here are some alternative places where you can go to for help:
Credit Unions - These are small not-for-profit groups that help people save and borrow money, and you may be able to get a loan. You can find out which credit union you are eligible to join by searching
Ask for an advance - You can ask your employer to give you an advance on your wages, or the JobCentre Plus may be able to arrange a short-term advance on your first benefit payment.
Foodbanks - These organisations help provide emergency food and toiletries to see you through to payday. You can see if you qualify for your nearest branch .
Check your benefits - Make sure that you are getting all the benefits that you are entitled to using this calculator from the charity .
Freecyle/Facebook groups/Gumtree and eBay - You maybe able to find free or cheap second-hand furniture.
Boost your credit score - If you're never rejected for credit then there are ways to show lenders that you can be responsible with your cash.
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