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Financial Inclusion & apability Service Newsletter · day lenders allow you to bor-row more money...
Transcript of Financial Inclusion & apability Service Newsletter · day lenders allow you to bor-row more money...
Maximise your income
Are you getting everything you’re
entitled to? If you’re not sure, make
an appointment with us for a bene-
fit check.
The Scottish Parliament Information
Centre estimates that billions of
pounds worth of state benefits and
tax credits remain unclaimed every
year.
In addition to state benefits, there
are other ways to maximise your
income, for example:
Take in a lodger.
Ask our grown-up children
who live with you to con-
tribute to the bills.
Switch services. You may
not be getting the best
deals for your insurance,
phone, broadband, elec-
tricity or gas suppliers. Ask
us for advice.
Set up Direct Debits for
your bills, to avoid late-
payment charges and get
discounts on some utility
bills.
Some people find it difficult to open
a standard current account, whilst
others may be reluctant to open one
for fear of getting into debt due to
bank charges.
You may not be aware that, since 1
January 2016, new basic bank ac-
counts have been made available to
everyone and are free of all charg-
es. These accounts offer no credit
card and no overdraft to avoid the
risk of debt.
They are particularly useful for those
who don’t already have a bank
account, and those who can’t use
their existing account due to finan-
cial difficulty.
These accounts give you a debit card
so you can make payments in shops
and online, access the ATM network
and set up direct debits.
Ten banking groups offer these fee-
free accounts: Barclays, the Co-
operative Bank, HSBC, Lloyds Bank-
ing Group (Bank of Scotland, Halifax
and Lloyds), Clydesdale Bank and
Yorkshire Bank, Nationwide, RBS
Group (NatWest, Royal Bank of
Scotland and Ulster Bank), Santan-
der, TSB and Virgin Money.
You will need a form of ID to open a
basic bank account but benefit
entitlement letters often suffice if
you don’t have a passport.
If you don’t already have one, open-
ing a bank account is a good idea
given that the Government has
made bank accounts a requirement
for all claimants of the new benefit,
Universal Credit, which aims to
replace all means-tested benefits
within the coming years.
Basic Bank Accounts
Community Help & Advice
Initiative (CHAI)
ELS House, 555 Gorgie Road
Edinburgh EH11 3LE
Phone: 0131 442 1009 Email: [email protected] Web: www.chaiedinburgh.org.uk
July 2017 Volume 1, Issue 1
Financial Inclusion
& Capability Service
Newsletter ABOUT US
We are a registered Scottish
charity providing free and
independent advice to
people affected by housing,
debt and benefit issues in
Edinburgh and Midlothian.
Our new Financial Inclusion
and Capability Service
(FICS) Project aims to lift
individuals out of financial
hardship to prevent the use
of illegal and unaffordable
sources of credit.
The project is funded by
Trading Standards and is
delivered by CHAI in con-
junction with NHS Lothian.
September 2017 Issue # 2
INSIDE THIS ISSUE
Be Credit Wise! 2
A Comparison of
Credit Methods
2
@CHAI_FICS
Be Credit Wise!
There are many ways to bor-
row money. Some ways of
borrowing are cheaper than
others, and some lenders are
downright illegal such as loan
sharks. To help you become
credit wise, we’ve outlined
below the potential dangers
associated with various ways
of borrowing.
PAYDAY LOANS
Payday loans are short-term
loans, which are intended to
be cash advances on the salary
you are expecting. You need to
be aware that payday loans are
one of the most expensive
borrowing options.
If you borrow £100 for 30 days,
you can typically pay £125 in
total, which equates to an APR
(Annual Percentage Rate) of
more than 1,000%.
These significantly high inter-
est rates are often made worse
by additional fees, charges
and penalties for late pay-
ments. If you are late with
your repayments, some pay-
day lenders allow you to bor-
row more money or ‘rollover’
your loan, thus further increas-
ing your debt to crippling lev-
els.
Payday loan companies often
use continuous payment au-
thorities (CPA). Unlike a direct
debit, a CPA gives lenders per-
mission to take payments
whenever they want, and take
payments for different
amounts, without consulting
you beforehand, which can
lead to nasty surprises.
CREDIT CARDS
Credit cards allow you to pur-
chase things now and pay lat-
er. It can be a useful way of
getting credit if you are able to
pay off the balance every
month.
Only paying the minimum
monthly amount, however,
could leave you with spiralling
debts due to very high interest
rates and late payment fees.
Some credit cards offer an
interest-free period. This may
be useful if you wish to borrow
for a short period of time. But
if you can’t repay the credit
within that free-interest peri-
od, your debt will increase very
quickly as interest rates usually
rocket once this period is over.
STORE CARDS
Many big stores offer finance
deals or store cards. Like credit
cards, they tend to charge very
high rates of interest if you
don’t repay in full each month.
Both credit cards and store
cards would charge you a high-
er amount than a bank or a
credit union.
BANK OVERDRAFTS
Bank overdrafts can be an
expensive way of getting credit
as they often incur hefty fees
and interest, especially unau-
thorised ones which lead to
even higher penalty charges.
DOORSTEP LENDERS
(HOME CREDIT)
Doorstep lenders lend small
amounts of money over short
periods to people on low in-
comes or with poor credit
histories. A local agent calls at
your home each week to col-
lect the repayments. They
often charge very high rates of
interest.
Because you see to the same
debt collector every week,
some people end up feeling
indebted to them and may
feel pressurised to take out
further loans or agree to un-
affordable repayment plans,
leaving them unable to pay for
essential things like rent and
utility bills.
@CHAI_FICS
“If you must borrow
money, there are
safer and more
affordable
alternatives such as
credit unions.”
Page 2
Issue # 2 - September 2017 Page 2
HIRE PURCHASE
If you need to buy expensive
household goods, it may be
tempting to get credit from a
hire purchase company such as
Brighthouse. But be aware that
it is usually a more expensive
way to borrow, and you will
end up repaying a lot more
than what the item was worth
in the first place.
Don’t forget that the agree-
ment is for hire only: you don’t
own the goods until your final
instalment, and for the dura-
tion of the contract, you are
liable for the costs of repairing
the item if it breaks down. The
item could also be repossessed
if you are behind with your
payments.
To finance household goods,
you could apply to the council’s
Scottish Welfare Fund for a
grant, or to the DWP’s Social
Fund for a Budgeting Loan. You
could also apply for a charity
grant. For a full list of charities:
www.turn2us.org. Alternatively
you may be able to find second
-hand goods in local charities or
on websites such as Freecycle.
CREDIT UNIONS
If you must borrow money,
there are safer and more
affordable alternatives such
as credit unions. A credit un-
ion is a self-help co-operative
where members pool their
savings to provide each other
with credit at a low interest
rate. They ask you to save so
that they have money to lend
to people. They also encour-
age people to manage their
money better. Credit unions
can lend smaller amounts of
money than most banks and
other lenders will. Most credit
unions charge low rates of
interest and the amount of
interest they can charge is
capped by law (3% a month or
42.6% a year APR).
LOAN SHARKS
Loan sharks are people who
lend money without the cor-
rect legal permissions. They
charge very high rates of inter-
est and don't give you much
paperwork to confirm the loan
arrangements.
Loan sharks often take other
illegal action to collect the
money they lent you like
threatening to harm you or
take things that belong to you.
If you have come across a loan
shark, seek help: call the Gov-
ernment’s helpline on 0800
074 0878 or visit:
www.tsscot.co.uk/loan-sharks
To help you better understand the cost of credit, we’ve compared the cost of borrowing £1,000 across
various credit methods. The APR (Annual Percentage Rate) shows you how much you end up paying the
lender for each £1 you borrow: so if the APR is 20%, you pay £200 for every £1,000 you borrow.
A Comparison of Credit Methods
Source: Money Advice Scotland.
@CHAI_FICS
Credit
Method
Credit Card
(minimum
payment)
Hire
Purchase
Home
Collected
Loan
Payday Loan Store Card Credit Union Credit Card Bank Loan
Amount of
Repayments
(per month)
2% of balance £54 £152 Btw £633.33
& £533.33 £112 £52 £91.92 £45.44
Cost of Credit £1,959 £937.50 £820 £600 £342 £250.30 £103.04 £90.54
APR Not applicable 64.7% 272.2% 2261% 30% 24.9% 18.5% 8.8%
Total Repaid £2,959 £1,937.50 £1,820 £1,600 £1,342 £1,250.30 £1,103.04 £1090.54
Length of
Loan
26 years and
5 months 3 years 1 year 3 months 1 year 2 years 1 year 2 years