UK Credit Market

Many of you may have heard of the UK home credit market, some will have used this form of borrowing, some probably wouldn’t touch it with the proverbial barge pole.

If you are not so sure what the UK home credit market is, this is a small break down to try and explain what it is to you. It is basically a home credit facility that offers up small loans to people who either cant get credit cards or personal loans, or they just don’t want to have a long term credit set up. Once you have contacted a home credit company and have been given a loan, an agent commissioned by the home credit company will bring the loan to you, and then will return either once a week or every second week, to pick up your repayments.

You may think this is quite handy, no need to deal with banks and credit card companies, who will charge you large penalties if you forget to leave enough in the bank to cover the payment, or you just simply don’t send away your payment on time.

This may be the only advantage in this whole business, but the rate of APR that is charged, runs at far and above what you would normally be looking at if you owned a credit card or just have taken out a personal loan. Both of those ways would normally have an APR of anything up to 30%, but that will be at the upper level of interest. Put that to what you would be paying back to a doorstep lender and it will seem like the deal of a lifetime. The Home Credit Market are currently on average charging an APR of 177%, but in some cases it can go as high as 900%, see the difference, it’s daylight robbery.

If you take a breakdown of these figures and put them against each other, it will still not look any better, for example take a credit card rate in the upper regions of interest at 30%, if this is broke down weekly then interest charged would be 0.5-0.6%, so by working out the interest on the doorstep lenders average APR of 177%, then you could be looking at a weekly interest charge of 3.4-3.5%, that is almost 6 times higher than the highest rate of interest on a credit card, but if we worked it out on the 900% high that can be charged by doorstep lenders, you will be charged a month what a credit card in the average APR region would charge a year in interest, the mind boggles.

But it is the rate of interest, that really doesn’t make these companies any better than legalised loan sharks, and it has brought about the “super complaint” made to the Competition Commission by the U.K watchdog the National Consumer Council, who want the home credit industry looked into regarding the over the top interest rates that the doorstep lenders are charging and there are going to be many red faces, among the major providers of the home credit market, to justify such interest rates.

The Competition Commission also have a few other practices that they want to get to the bottom of; these include the apparent way that the home credit industry has a way of preventing competition, either by restricting it, or distorting it.

So what has the UK’s Home credit companies said in response to the inquiry? Well they have said that the high interest charges are a reflection of having to cover the costs of the collection agents and the small amounts of cash that is taken out in loans, this will be £200- £300 a any one time. They have also thrown up the argument that they only account for 1.3% of the whole credit market on unsecured loans and they haven’t seen any growth over the last few years, which is not that much of a surprise, considering the consumer is not as naive as they once were, when it comes to getting a deal that suits them, rather than the company that is trying to sell.