“Usually these are multiple loans,” says the general manager of the Fairshare credit union. “When people have problems, it is not usually one or two, they have three, four or five.
“It usually starts when something happens, like your car breaks down or household items are needed.
“They go to the first source of cash they can find, then something else comes up, then they get another loan, using one payday lender to pay another.”
The collapse of controversial payday loan company Wonga, which infamously charged interest rates of up to 5.853 percent annually, will not be lamented by many. However, some worry that if people cannot access companies like Wonga, they will turn to illegal loan sharks.
The idea that personal loans are a necessary evil is a source of frustration for people like Harrower.
“We see ourselves as an alternative to a payday lender, but our interest rates are capped at 36 percent per year,” he says. But while nonprofit lenders like Fairshare can help cash-strapped families without the exorbitant interest rates that cause so much misery, what they can’t deliver is the sympathetic seniors in the big-budget TV spots they made. Wonga a household name.
“We can’t compete with their marketing budget because we can’t charge the high interest rates they pay to pay for it,” he says.
Fairshare is one of 292 credit unions in Great Britain. Like Victorian building societies, they are wholly owned by their members and offer both savings accounts and loans. In many cases, there are geographic requirements on who can join; Fairshare, for example, is open to anyone who lives or works in Shropshire, including Telford & Wrekin.
On the county line, Castle & Crystal, which is open to anyone living or working in Dudley or Worcestershire, has taken a leaf out of the payday lenders book by adopting new technology. Its new website features Wonga-style sliders that allow people to see in an instant what their monthly payments will be, and general manager Dharminder Dhaliwal says a decision can be made up front in just a minute.
“These days we can verify someone’s details electronically, we don’t need them to bring their passport or bank statements like they would have done 15 years ago,” says Dhaliwal.
“These days, people lead busy lives and convenience is a big factor.”
However, what credit unions won’t do is offer no-questions-asked loans. While credit unions will lend money to people who have been turned down by major banks, each applicant will be thoroughly screened to make sure they can repay the loan.
“If we know that they cannot repay the loan, we help them recover,” says Dhaliwal. “We encourage them to save a little bit each month and then reapply in three months.” Castle & Crystal has also launched a Money Saving Blog, offering monthly tips to its members.
“We are using technology, but with an ethical dimension,” says Dhaliwal.
“The new tool on our website makes it easy to access our services, but it is still a human being who has the last word on loan decisions, as the tool is only one factor in our decision-making process.
“The way the new loan tool is set up is so that many can directly accept a loan online, but many will also see a reference, which means it will be presented to us for review and we will help them regain financial health if I can’t give you a loan. “
Unlike payday lenders, credit unions generally do not engage in 30- or 60-day loans.
“Our shortest loans are for three months,” says Harrower, noting that the interest on this is a fraction of the cost of a 30-day loan from a payday lender.
“Payday loan companies want people to keep turning to them and borrowing multiple times,” he says.
“We are also more flexible in the amount of time it takes to pay off the loan.
“We make sure you can repay it at an affordable price, and if you have difficulties, we are flexible on how you could restructure it.”
There are currently two million credit union members in the UK, who are estimated to have saved a total of £ 3 billion. They are still comparatively small players in the financial services market, but have been boosted in recent years after being endorsed by the Archbishop of Canterbury, the Most Reverend Justin Welby, and former Prime Minister David Cameron.
Dhaliwal says this is good news not only for the members, but also for the communities in which they live.
“For every £ 1 million we distribute, our members save £ 750,000 in interest,” he says.
“That £ 750,000 stays in the area, it increases disposable income, that’s more money being spent in shops and supporting local areas.”
* The Fairshare Credit Union has offices in Southwater Square, Telford and Cross Hill, Shrewsbury. For more information, visit the website fairshare.uk.com or call 01952 200200. For general information on credit unions, see abcul.org