Some forms of borrowing can be very expensive when you work out what you will have to pay back by the end of the agreement. Make sure you work out what sort of credit suits you.
The Money Helper has information about different kinds of credit and loans, and what they may cost you to pay back. It could be that saving up for what you want may be a better plan.
Community banks - formerly known as credit unions
There are a number of community banks in Derbyshire, including:
Community banks are not-for-profit financial co-operatives which are owned and controlled by members and authorised and regulated by the Financial Services Authority. Any savings you put into a community bank are covered by the Financial Services Compensation Scheme just like banks and building societies, so your money is always protected.
Community banks were formerly known as credit unions. Many no longer use this name and although some still do, they all provide a similar service.
Watch a credit union animation.
They are run by local people to provide savings accounts and loans at lower costs than some forms of borrowing, such as pay-day lenders or 'buy-to-own' shops.
Community banks are doing more online. Some allow you to apply for loans and manage your account online, others have branches and drop-in locations.
Saving
Saving with a credit union is a great alternative to using high street banks. As well as dealing with people rather than systems, you can take advantage of the following benefits:
- access to your money – there are no penalties for withdrawing money, so you can take it out whenever you want
- watch your money grow – dividends are paid annually but are dependent on the financial position of the bank
- manage your account your way – online, in branch or by telephone
- pay in to suit you – by cash, cheque, standing order, payroll deduction or by paying in a benefit of your choice
- ethical savings – by saving with the bank you are allowing other local people to borrow who would otherwise be unable to access high street lending
You can start your savings journey from as little as £1 per week.
You may be able to save or borrow directly from your wages. There is information online explaining how our staff can do this. Check with your credit union or speak to your employer.
Borrowing
Community banks offer a wide range of loan options for residents who struggle to access mainstream lending products such as a bank loan or credit card. One of the most popular products offered is a family loan.
If you're in receipt of Child Benefit, a family loan allows you to borrow up to £750 subject to an affordability check. This loan depends on you having your Child Benefit paid into your community bank account. Some of the money will go to pay the loan, and some will go into a savings account. Once your loan is paid off, you'll have a savings pot ready to withdraw.
It will take a portion to repay the loan while the remaining child benefit is placed into a savings account which cannot be accessed until the loan is repaid. Upon full repayment, the resident will have a nest egg saved away, ready to withdraw.
Whether it's for an unexpected bill, a fridge freezer, cooker or washer, community banks offer a responsible and affordable way to borrow with rates far cheaper than some other forms of borrowing.
The amount of interest a community bank can charge is capped at 42.6%. On a typical loan of £500 over 12 months, the most you'll pay back is £622.68 (or a cost of credit of £122.68). The same loan advertised by home-collected credit company would mean repaying £700 (a cost of credit of £200), or higher, as the 'representative APR' advertised is not always the rate offered.
Fair For You
Fair For You offers affordable lending to finance white goods and soft furnishings as a not-for-profit alternative to weekly payment stores. Items are procured from external providers such as Whirlpool and Dorset Home Stores and are charged at standard retail prices, there are no hidden fees.
Customers have a free choice of items from the selected providers and can then apply for the finance through Fair For You with the repayment rates and total payable clearly advertised prior to accepting the finance agreement. Fair For You are regulated by the Financial Conduct Authority.
Community development finance institutions (CDFIs)
Responsible lenders (known as CDFIs) are a newer form of borrowing but are still run either not-for-profit as a community interest company.
They charge higher interest rates but might be able to lend to people with poor or thin credit files. As responsible lenders, they'll only lend if they know that a loan is affordable for their customers.
Responsible finance providers offer simple, affordable loans when the bank can't help.
Help to Save
Residents on some benefits may be eligible to join the government backed Help to Save initiative.
This system allows you to save from £1 to £50 per month and pays out tax free bonuses on savings of up to £1,200 over 4 years.
To qualify, you must be in receipt of the following benefits:
- receiving Working Tax Credit
- entitled to Working Tax Credit and receiving Child Tax Credit
- claiming Universal Credit and you (with your partner if it's a joint claim) earned £722.45 or more from paid work in your last monthly assessment period
Get more information about help with savings if you're on a low income and open an account.
Basic bank accounts
If you're simply looking for a basic 'no frills' bank account for your income and outgoings, Money Helper has information about fee-free basic bank accounts.
For a confidential conversation around affordable credit and safe saving options, please email affordable.credit@derbyshire.gov.uk.