High cost of credit a ‘key risk’ says Citizens Advice
The Bank of England’s latest money and credit statistics show consumer credit increased by 10.3% in the year to May, to £199.7bn.
Citizens Advice chief executive, Gillian Guy, said: “Problems with poor credit checks in the high cost credit market are trapping people with loans they can’t afford. We’ve helped people with over 30,000 high cost credit problems in the last year, including borrowers who’ve been given expensive rent-to-own or doorstep loan agreements despite having very little income.”
The Financial Conduct Authority (FCA) is currently undertaking a review into high cost credit, having clamped down on payday loans earlier this year. The review set limits on the interest charged and said overall repayments could not exceed the term of the loan. The scope of the investigation includes overdraft costs. Consumers have complained that unauthorised overdraft costs may in certain circumstances exceed the cost of a payday loan.
Guy added: “High cost credit lenders must act responsibly to prevent people getting caught in cycles of debt. Turning the FCA’s current guidance on affordability checks into rules would ensure lenders must carry out thorough checks on borrowers. It would also give the regulator more power to penalise high cost credit lenders who fail to do this.”
Are you paying too much for credit?
- Take a long hard look at how much your debt is costing you. Interest rates are at 0.25%. Personal loan rates are around 3.5%, and the best credit cards only charge 10%.
- Overdrafts are one of the most expensive form of borrowing. If you are using your overdraft every month, consider a personal loan.
- The cost of your borrowing is likely to exceed the interest rate on any savings: If you have savings stuck in cash, pay off your borrowing first.
- Payday loans and high interest credit cards – if you need them, you probably can’t afford them. They should only ever be used as a very short-term solution (think days, rather than weeks).