“Last month, rent-to-own retailer BrightHouse was told to pay £14.8m to 249,000 of its customers by financial regulator, the Financial Conduct Authority (FCA). There were two reasons for this – the first was to compensate customers who had cancelled agreements after one down payment, but who hadn’t received a refund. The second was for not making a proper financial assessment of customers who had signed up to make sure that payments were affordable – therefore not acting as a responsible lender.
“A report by the Financial Inclusion Centre in March 2016 found that the cheapest washing machine at BrightHouse cost £471 – but with the three-year weekly repayments at 69.9% APR, it actually cost £1056 with product insurance in total. This is over £500 more – whereas the cheapest similar product on the high street was £250. Four times cheaper.
“High-cost lenders like BrightHouse (and payday lenders which have even higher interest rates) make it really easy for customers to access credit for household goods and they then may end up paying back twice as much or not being able to afford to repay at all. It is pure and simply charging people on a low level of income and who have limited choices in terms of credit (and who may be desperate) a higher price when they are less able to afford it. While £10 a week for a washing machine seems OK in the grand scheme of things, customers need to realise that they are paying for it over three years, as opposed to six months. Goods can also be overpriced to start with and all these things are setting customers up for a fall.
“When you’re living on a low income and spending more than you need to on household goods with high cost lenders, this affects how much you can put towards vital things like food, rent, heating and bills. There are affordable and ethical alternatives out there including credit unions which don’t sell washing machines, but can provide loans to people who need them. We work in partnership with local registered social landlords who help promote us to avoid tenants using high-cost or payday lender and get trapped into the cycle of debt.
“The key thing is to work out how much a product is going to cost you overall over the duration of the loan. Most loans specify APRs, but these baffle people and it is much more important to consider the total amount to pay back because this will help you to make a decision as to if you can afford it.
“At Nottingham Credit Union, we are an affordable, responsible lender and have a lot of customers who have come to us after having difficulties with high cost and payday lenders. It’s very easy to get into these situations – easy access to finance for products, very quick turnaround and with great customer service so people go back for more. It’s sometimes not quite so easy to get out of the debt created.
“We try to help educate people into looking at all the options and whether they can afford repayments. We try to look at where we can help reduce costs for our members by properly assessing paperwork and bank statements. £10 a week for a washing machine doesn’t sound like much, but when you add up the total cost it could cover an annual family holiday.”
If you would like to speak to Nottingham Credit Union about cheaper loans, contact us on 0115 828 3121 or firstname.lastname@example.org