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Credit Union Battles Payday Lenders Head-on London Mutual Credit Union offers consumers loans valued from £100 to £1,000 at 2% interest, on same day if necessary; more credit unions expected to follow suit

While debt advisors and others in the know have long seen credit unions as a low-risk, lowcost alternative to high-risk, high-cost payday lenders, many consumers who were in desperate need of extra cash found the convenience of loans being delivered to their accounts almost instantly just too ‘good’ to miss. However, one credit union has taken on board the importance to consumers of having a quick decision on a loan, and other credit unions are likely to follow suit. Most London Mutual Credit Union loan decisions made within 24 hours but same-day service also available for an extra charge The London Mutual Credit Union (LMCU) generally makes loan decisions within 24 hours, with the online application process taking just 10 minutes. Although the institution notes that only 20% of loan applications can be granted entirely online, borrowers who need to provide extra information or get additional advice from a member of staff can do so over the phone, and still normally have a decision by the next day. Those who need money particularly urgently can request a same-day service. While there is a charge of £11 for this, borrowers who meet the credit union’s requirements and have their loan approved will receive the money in their account in a matter of hours. All loan applicants go through affordability and other checks All loan applicants have to go through an affordability check to ensure that they will not struggle to repay the sum borrowed and the interest. As part of the application process, prospective borrowers have to take a short psychometric test (a test designed to evaluate a respondent’s personality, opinions, etc,), to assess the consumer’s attitude to financial responsibility. Borrowers have to pay a low fee to join the credit union before being lent any money Unfortunately for those who live and work outside of central London and who need a payday loan, London Mutual’s CUOK website only provides loans to those living or working in the boroughs of Southward, Lambeth, Westminster and Camden. Payday loans are only available to those in a job paying a minimum of £12,000 per year, and who pay this into a bank account with debit card and direct debit facilities. However, London Mutual also has loan products for those who are not currently employed. Loan applicants do not need to be pre-existing credit union members, however they will need to join before they can take out a loan. There is a small set-up fee of £2 and an initial £5 deposit required for this. Association of British Credit Unions encouraging members to speed up loan approval process The good news is that many other credit unions are expected to start offering a similar service in the near future. The Association of British Credit Unions has introduced an automatic scoring system, helped by the credit reference agencies, for assessing loan applications. The body is keen for its members to speed up the speed at which they process loan applications. This should allow them to become much more competitive in the short-term loan sector.


Credit unions generally offer slightly longer loans, giving consumers more time to repay However, one significant difference between payday lenders and credit unions is that credit unions are reluctant to lend for exceedingly short periods, such as 10 days. For instance, a loan of just £100 could be repaid over a period of up to three months, rather than 10-20 days. £400 borrowed for a month from LMCU would cost £8 but about £120 from a payday lender Furthermore, a borrower who took out a loan of £400 for one month would pay just £8 extra in interest to the credit union, compared with a typical cost of £120 when using a payday lender. Combined with the 2% cap on interest rates that credit unions are legally allowed to impose, the extra time available to repay loans means that they are much more affordable and manageable for customers. Consumers in debt should seek free, independent advice and perhaps see what a local credit union could offer Any consumers who are struggling to cope with debt and who use payday lenders, or have been thinking of doing so, should consider visiting their local credit union to see what options might be available at a very low cost (see below for credit union locator). Free independent advice is available from a number of charities and organisations. Be wary of any company that tries to charge money for this service – there are plenty of excellent free alternatives available. See the list below for just some of them. Credit union locator Association of British Credit Unions http://www.abcul.org/home

Free, impartial debt advice Citizens Advice

http://www.citizensadvice.org.uk/index/getadvice

Step Change

http://www.stepchange.org/

National Debtline

http://www.nationaldebtline.co.uk/england_wales/index.php

Debt Advice Foundation http://www.debtadvicefoundation.org/

Summary London Mutual Credit Union offers consumers loans valued £100 to £1,000 at 2% interest, on same day if necessary, in a head-on battle with payday lenders About Author: Author is doing research and writing article on how to complain online in The UK.

Credit union battles payday lenders head on 19 10 2013  

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