08/03/13

Credit union Kent Savers an alternative to 'irresponsible' payday loans

by business editor Trevor Sturgess

People needing quick loans to tide them over are being encouraged to seek help from a Kent-based credit union rather than face swingeing interest rates from "irresponsible" payday lenders.

Kent Savers was set up three years ago to provide finance to people in Kent, Medway and Bexley.

It has since approved £1million in affordable loans with a maximum interest rate of 26.8%, but often less.

The Office of Fair Trading this week denounced "widespread irresponsible lending" by so-called payday loan firms. Many Kent borrowers are burdened by huge debts, sometimes owing far more than the original loan.

The OFT has given the biggest firms 12 weeks to change their practices. But Kent Savers, authorised and regulated by the Financial Services Authority, has warned that during that time, "hundreds if not thousands of new people" will have taken out additional loans with these firms.

It says it can help straight away, vowing never to sanction loans to people who cannot afford to pay.

Borrowers and investors become members of the organisation, and regular savers receive a share of any surplus. Kent Savers is part of a nationwide credit union movement that now boasts more than a million members - and no outside shareholders.

Borrowers who turned to Kent Savers instead of doorstep or pay day lenders have saved many hundreds of pounds in interest, says general manager Chris Hunt.

“Payday loans firms make their money from issuing loans at sky high rates and then make more money by rolling over these loans when people can’t afford to repay them on time.

“Credit unions will never charge more than 26.8% APR and often less. Kent Savers aims to provide affordable loans to people throughout Kent and Bexley, and not to make huge profits for our shareholders."

Kent Savers claims that a £300 loan from a leading home credit provider, repaid weekly over 52 weeks, could cost £246 in interest. A similar sum from a credit union, charged at the current maximum interest rate of 2% a month on the reducing balance, would cost no more than £40 in interest, representing a saving of more than £200.

Kent Savers is supported by the Department of Work and Pensions growth fund, Kent County Council, district councils and housing associations.