Big Win for #debtbusters
Thursday, October 17th, 2013 @ 2:00AM
As well as being exactly 10 weeks to Christmas, today is International Credit Union Day. To mark it, Capital Credit Union have decided to expand their Swift500 product so that it’s available to anyone willing to save with the credit union by direct debit.
So what does that mean? Well it means for the first time, everyone in Edinburgh will have access to a credible, accessible but most crucially affordable alternative to Payday lenders.
In hard cash terms, here’s the difference when you compare their representative APRs:
If you borrow £500 from a leading payday lender tomorrow and pay back in 1 months time you’ll have paid £2438.75 in interest, based on their current APR of 5853%*.
If you borrowed that £500 from a Capital credit union tomorrow and paid it back in 1 months time, you’ll have paid back *£11.17 in interest, based on their current APR of 26.8%
That’s potentially a staggering difference of £2427.58 and that’s before you factor in fees and how much you’d end up paying back if you “rolled up” your first loan into a bigger one.
The reality though is that a credit union would ask you to pay back over six months rather than one. Why? Because they believe in ethical and sustainable finance. If you’re £500 short one month, chances are your going to feel the pinch again the next one. They’d rather you borrowed over a longer period of time and therefore made smaller repayments.
So what would a 6 month loan mean to our savings? Well you’d pay back £39.80 in interest. Still a thumping potential saving of £2398.95 plus a far more manageable loan and a greater chance that you wont need to keep borrowing to stay a float.
It’s a great result for all the #debtbusters campaigners who have been campaigning for nearly 2 years now to take on payday lenders street by street, promote credit unions and improve debt relief.
But it’s not just Capital Credit Union marking International Credit Union Day. Here’s a big announcement from Ed Miliband on what a Labour Government would do to take on Payday lenders. I’ve no doubt that the efforts of Debtbusters and Sharkstoppers across the UK made this happen as well. A good day.
* * * * * Update * * * * *
* Wonga have been in touch to say that this calculation doesn’t reflect what they charge and that the APR is not a fair way to compare loans. They said “the cost of borrowing £500 over a month is well below £700, rather than the £2,400+ you claim.”
The problem with that is that it relies on someone paying off their loan within the original terms. We know that “roll overs” taking out bigger loans to pay off the previous ones are where Payday lenders make their money.
Here’s a helpful infographic from the OFT report into Lending that explains what can happen, in what I would view as very conservative terms.
(Finally, if you don’t believe that a small loan can turn into thousands of pounds worth of debt, watch this video with my constituent james)