Thursday, March 22, 2018

Making a profit out of destitution and desperation

Those on the lowest incomes pay the most to borrow money even where they are borrowing for essentials. This is compared to those on higher incomes who can generally borrow at lower rates for luxuries like holidays and high-end consumer goods.

But those on the lowest incomes are much less likely to borrow on credit cards or get personal loans for new cars. Instead, they turn to alternative lenders such as payday lenders, rent-to-own and home collected or doorstep lenders. And often this is to pay for basic items such as school uniforms, nappies, white goods and sometimes even food, and to tide them over between jobs. Or when their wages are lower than expected due to zero hour contracts and casual work.

These alternative lenders typically charge far higher rates of interest than mainstream lenders. For example, in 2016 the charity Church Action on Poverty highlighted the cost of buying a fridge freezer from BrightHouse, a large weekly payment retailer with shops on many local high streets. The total cost was £1,326, which included the purchase price of £478.33, interest of £658.74 and various warranty and delivery charges. The exact same fridge freezer, bought through Fair For You, a not-for-profit Community Interest Company, would have cost a total of £583.68 (including the purchase price £373.99 and interest £120.38).

 200,000 people took out a rent-to-own product in 2016 and 400,000 had outstanding rent-to-own debt at the end of 2016. The home-collected credit market is larger, with 700,000 people taking out a home-collected credit loan in 2016 and 1.6 million people with outstanding debt on these products at the end of 2016. So it is clear that hundreds of thousands, if not millions, of people on low incomes are paying dearly for access to credit. 

Research also highlights that many people in the UK, both in and out of work, are on very low incomes which vary week to week. This makes it very difficult to make ends meet and is one of the main reasons why people turn to credit. It is therefore important to tackle these fundamental problems of poverty and precarity, as well as the issue of high-cost credit.

No comments: