Struggling borrowers offered 'fairer' alternative to loan sharks

A new scheme to help financially excluded people avoid resorting to expensive pay day loans and illegal loan sharks is today being launched by the government.

The scheme, called ‘My Home Finance’, aims to give people on low incomes, with poor credit records, access to affordable credit at lower rates of interest than those usually charged to people who are financially excluded.

It will charge a starting interest rate of 29.9% APR for modest sums of around £500, repayable weekly. This compares to loan sharks which typically charge interest rates of anything between 200% and 2,000% APR.

However eligible customers will have to undergo a face-to-face interview before they are accepted.

David Orr, Federation chief executive, said: ‘My Home Finance will provide an affordable, convenient and trusted option for people on lower incomes looking to build up their savings and borrow modest sums’.

‘By offering fair loans at fair prices, we hope to offer an alternative to both loan sharks, who cynically prey on hard up families, and doorstep lenders, who are all too willing to lend cash to the desperate at hugely inflated rates of interest’.

My Home Finance will also offer debt advice and help customers open a bank account to encourage saving.

The scheme, created by the National Housing Federation and supported by the department for work and pensions, Royal Bank of Scotland, 26 housing associations and the Wates Foundation, is to begin in the West Midlands and open 10 branches in busy high streets and shopping centres by the end of October. If the pilot scheme is successful, My Home Finance could open branches nationwide.

Iain Duncan Smith, secretary of state for work and pensions, will today launch the new scheme in a speech to the National Housing Federation annual conference, at the ICC in Birmingham.

Currently, around 2.5 million people borrow from doorstep lenders at rates often in the region of 272% for new customers. A further 200,000 are estimated to borrow from loan sharks.

Duncan Smith said: ‘It is great to see new ideas coming through to help the poorest in our society access credit and advice on how to avoid unsustainable levels of debt’.