Calls to regulate the practices of doorstep lenders have been made after research by charity Barnardo’s found that vulnerable families suffered from ongoing debt management issues after being targeted.
They call for stricter regulations to curb “extortionate” interest rates and prevent vulnerable families from being targeted by companies.
Following its report Counting on Credit, the children’s charity claims that families opting for loans from these lenders are plunged into “worrying levels of debt” and face endless debt problems.
Some lenders charge Annual Percentage Rates (APRs) of up to 545%, and they cite Provident Financial in their report as an example of this.
Based on a £500 loan from Provident Financial, Barnardo’s calculated the total amount to be repaid over a 31 week period would be £775 – a 365.1% APR (annual percentage rate).
If the £500 was spread over a 23 week term, the total amount to repay would have an APR of 545.2% – with £747.50 repaid.
Debt advice organisations have asked for more to be done to assist families suffering with debt problems caused by such loans.
Ivan Cooper, Chairman at leading debt management firm Chiltern, said: “Unless the Government imposes stricter regulations on such practices, susceptible families will continue to suffer debt problems as a result of their debt management issues.
“By receiving a collector at their house each week, people often feel vulnerable in their own home – without realising that there are things they can do to relieve their debt problems.
“In most cases, seeking some impartial debt advice can relieve finances and allow unsecured debts like these to still be repaid.”
Reputable debt advice organisations, like The Debt People, Hamilton Locke and Chiltern, offer a number of ways to alleviate debt problems for peopel struggling with their unsecured balances (Personal loans, overdrafts, store card and credit card debts etc).
Following their debt advice, they may offer simple debt help covering budgeting techniques and prioritisation methods to relieve debt problems, or in some circumstances a professional debt management solution may be required.
Professional solutions include Debt Management Plans (DMPs), Individual Voluntary Arrangements (IVAs) and Trust deeds amongst others.
A Debt Management Plan (DMP) is a way of regaining control of your finances whilst still repaying all unsecured balances. DMPs make finances simpler by gathering multiple balances into one manageable monthly payment, which is based on your affordability. This means that the amount you pay each month will always be affordable, as it is based on your disposable income – the amount remaining each month once priority payments have been deducted.
With a Debt Management Plan, you make one monthly payment which is then distributed on your behalf to the people you owe money to. This simplifies finances, as you only need to pay once each month. Payments towards your debts are then rescheduled over a longer period of time, to mke them more affordable, which will be negotiated by the company providing your Debt management Plan.
If your circumstances change and you no longer suffer from mounting debt problems, payments on your DMP can be increased or stopped accordingly. Likewise if your situation changes for the worse and you receive lower income, it can be revised down so that it is still affordable.
An Individual Voluntary Arrangement (IVA) works in a similar way to a DMP, but it is repaid over a fixed period of time. The IVA involves a legally binding agreement with your creditors – which protects you from them chaning their payment demands.
Because the agreement is binding, a qualified Insolvency Practitioner is required to draft your IVA proposal and offer suitable IVA advice and support.
Once the IVA term has been completed, all remaining unsecured balances are effectively written off and you walk away debt free. This allows you to make a fresh start with your finances.
For immediate debt advice, or for more information on other debt management solutions, please call the number at the top of this page.