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Amigo In The News

People use Payday unaware of alterative credit

The Daily Mail, 21 Aug 2013

The majority of people who are turned down for cards and loans by mainstream lenders are likely to turn to payday loans as they are unaware of alternative forms of credit, a study has claimed.

A survey by guarantor loan provider Amigo Loans estimates that just under a quarter of UK adults have been turned away from their banks for loans, mortgages and credit cards.

Of these, four-fifths feel forced to turn to alternative lenders who charge higher rates for credit.

And 72 per cent of people rejected for credit said they were aware of payday loans as an alternative, higher than the awareness of other forms of alternative credit.

James Benamor, of Amigo, said:

The majority of Britons are only aware of payday lenders who offer loans at ridiculous rates, and these are likely to lead consumers into even more financial difficulty.

If you need access to credit and are turned down by your bank, it’s vital to remember that there are other options out there and struggling Brits shouldn’t find themselves being forced down the payday route.

The fight against unfair practices among some payday lenders has been stepped up in recent months, with the industry currently the subject of an Office of Fair Trading probe into business practices.

They have been criticised for offering loans at interest rates equivalent to thousands of per cent APR, which become even more expensive when they are 'rolled over' from month to month.

Almost a third of firms subjected to the probe have since stopped lending, after the OFT sent letters to 50 lenders insisting they improve their business practices after finding widespread examples of irresponsible lending.

There has also been a drive to increase awareness of credit unions, with the Government backing an expansion of the market, and even the Archbishop of Canterbury Justin Welby championing the industry.

Unions are not-for-profit co-operatives that are generally community-based, centered around a geographical area, a workplace or an industry, and allow people to save money as well as take out loans at more affordable rates.

Among those who turned to payday loans when their debts mounted was 23-year-old Daniel Clarke, from Kent, who starting taking out the short-term, high-interest loans to cover his living expenses as all his disposable income was going towards debt repayments. He said:

For the past years I've been juggling credit card and other debts to try and keep all parties involved at least content with repayments, but nearly all my repayment plans have come with ridiculous interest rates meaning the debts would have taken years more to clear.

I ended up having to go to Wonga to have some money for general living. Taking this out was a dangerous affair and generally speaking, with such high rates you can then find yourself stuck in a cycle relying on payday loans, something I very much wanted to avoid.

Mr Clarke ended up taking out a £3,750 loan with Amigo to give himself more time to pay off his debts.

Amigo does lend to people with bad credit ratings, but the loans come with an interest rate of 49.9 per cent APR representative, significantly higher than mainstream lenders, though lower than the rates offered by payday lenders.

It also asks family or friends to act as guarantors on the loans, which means they could chase them for money in the event the loanee misses a payment or fails to pay off the loan.

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