Borrowers who are normally forced to seek exorbitantly expensive credit from doorstep and pay day lenders will be offered a cheaper source of borrowing by the government and the National Housing Federation.
My Home Finance has been set up by the National Housing Federation (NHF), with 10 branches opening as part of the pilot project.
Customers would have to go through a 45-minute interview to check they would have a realistic chance of repaying the
loan before being allowed to borrow sums of about £500. This would then have to be paid back weekly.
People would also be offered debt advice and help in opening a
bank account - in a bid to prevent them using loan sharks.
Around 2.5 million people borrow from doorstep lenders at rates often in the region of 272 per cent for new customers. A further 200,000 are estimated to borrow from
loan sharks. A majority of those financially excluded are social housing tenants.
The new organisation will provide loans charging a typical APR of 29.9 per cent in the pilot scheme, rising to 49.9 per cent APR in April, comparing very favourably to the rates charged by doorstep and pay-day lenders, which can range from 200 per cent to 2,000 per cent.
However, the interest being charged is higher than the maximum by law that credit unions can charge.
Credit unions, set up to encourage people on low incomes to save, are allowed to charge no more than 26.8 per cent APR - the annual percentage rate - with many credit unions only charging 12.7 per cent APR.
Loans of around £500 will usually last for a year, but borrowers can select a shorter or longer term if preferred.
Customers would have to go through a 45-minute interview to check they would have a realistic chance of repaying the loan before being allowed to borrow sums of about £500. This would then have to be paid back weekly.
The Federation is planning to open branches across England and is aims to write up to 150,000
loans to people on lower incomes in the next 10 years.
"By offering fair loans at fair prices, we hope to offer an alternative to both loan sharks, who cynically prey on hard up families, and doorstep lenders, who are all too willing to lend cash to the desperate at hugely inflated rates of interest," said NHF chief executive David Orr.
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