Newport Credit Union Loan Scheme Targets Payday Lender Victims
Newport Credit Union has pioneered a personal loan scheme to prevent more people from falling victim to high interest payday lenders.
The Family Loan is an innovative scheme which allows members of the credit union to repay what they borrow directly from their benefits.
Starting at around £100, the Family Loan can be repaid through Child Benefit payments.
The scheme has become so popular that a number of other credit unions in Wales are also following suit.
Newport Credit Union General Manager Ben West explained: “We wanted to put a stop to doorstep lenders in our communities and replace them with the ethical and fair qualities of the credit union.
“The Family Loan not only helps bridge the financial gap but helps people save their money for themselves and their children – possibly for the first time.
“So, each time a Child Benefit payment was made, a percentage would be used to pay off the existing loan and the remainder would be saved into an adult and a children’s account, allowing them to put some money aside for the future.”
If a member borrowed £300 over a year then it was repaid at £10 per week with £7 paying off the loan, £2 being put into a savings account for the adult and £1 saved for the child.
“At the end of the term they have not only paid off their loan but have £150 in savings, whereas if they’d gone to a payday lender, they would have likely been in debt,” Ben added.
Currently around 380 families are paying their child benefit payments into a Newport Credit Union Account with 350 of them using it to pay off a loan.
Neighbouring Gateway Credit Union, which is based in Pontypool and has offices across Torfaen and Monmouthshire has also adopted the Family Loan scheme for their members.
Manager Sara Burch explained: “We have many parents repaying loans via Child Benefit, and lots more who save their Child Benefit for special occasions.
“It really works well for lots of people. Typically, it’s used for Christmas, holidays, the back to school shop, school trips and essential items like beds and washing machines.”
As ethical saving and loans providers, credit unions are committed to their members and will only offer affordable loans to those who they believe can adequately repay them.
That means members are not treated as a credit score and despite being turned away for a loan from other high street institutions, may still be able to borrow from a credit union.
As social enterprises with no external shareholders, credit unions are able to offer loans at reasonable rates.
For instance, a £500 loan from Newport Credit Union over one year at an APR interest rate of 42.6% would mean the borrower repaid £602.76 in total.
A £500 loan from Provident over the same period (12 months) would have an interest rate of 535.2%*, meaning the over-all sum repaid would be £1,162.76 – almost twice as much as Newport Credit Union.
*Loan rates correct at time of writing – June 14, 2019.