Saturday 24 March 2018

Exhaust other avenues before using moneylenders

If you are in the unfortunate position of considering a licensed moneylender for a loan, you should realise how costly this service is and exhaust all other avenues first, writes John Cradden

THERE cannot be many of us that haven't needed a cash loan at one time or another in order to pay off an urgent debt or bill.

A credit card, if you have one, can be handy for short-term credit as long as you can repay it quickly, ideally before the typical 30-day, interest-free period expires.

You may have a bank overdraft facility, although the interest charged for these can be as high as 12pc-15pc. If you go over your overdraft limit, your bank can impose an extra surcharge ranging from 6pc-12pc.

If you have a good relationship with your local bank or credit union, then a small loan should be a straightforward thing to get approval for, although it is undoubtedly more difficult today than two or three years ago because of the credit crunch.

But, of course, it doesn't have to be a loan. More of us are saving for a rainy day than ever before with instant-access savings accounts.

Permanent TSB recently revealed that it has seen a 162pc rise in the number of regular savers it has since 2008, with the average saver putting away €250 a month.

But what if none of these sources are an option? This may be the case if you have lost your job recently, taken a substantial pay cut, or have accumulated considerable debt.

Borrowing from friends and family may seem an obvious option, assuming they are willing and able to do so.

"Hearing that people have been borrowing from family or friends is not something new for our volunteers," says Jim Walsh, a spokesman for The Society of St Vincent de Paul.

"It is better than approaching moneylenders, but it can lead to difficulties with relationships with these family or friends, particularly if there is a delay or difficulties with paying back what has been borrowed."

Some personal finance experts advise drawing up some form of written agreement that clearly outlines how much is being borrowed and how long before you pay it back.

Despite their bad reputation, are licensed, door-to-door moneylenders worth considering as another last resort?

These are usually small agencies who typically lend small amounts of money that is repaid at a very high level of interest over a short period of time, sometimes as high as 190pc annual percentage rate (APR).

They offer sums of between €100 and €1,500 that you repay, in cash, over a number of weeks or months. Others may offer larger loans of €1,000 or more.

They usually collect your repayments from you in cash each week.

Following a long history of problems with moneylenders in Ireland, these companies have to abide by a range of strict regulations under the 1995 Consumer Credit Act.

In addition, moneylenders must give you certain information before you enter an agreement with them.

Under the Financial Regulator's Code for Licensed Moneylenders, they must disclose all fees, costs and interest and they must explain that the loan has a high cost -- if the loan has an APR or 23pc or higher.

There are also practices which are tolerated by some lenders that are not permitted with moneylenders. These include giving top-up loans to clear an existing loan.

According to the Financial Regulator, there are 52 such companies registered in Ireland at the moment.

The Free Legal Advice Centre (FLAC) told the Irish Independent that they have not heard many reports of difficulties with licensed moneylenders over the past year.

FLAC, which published a legal guide to moneylenders in 2008, says that while there may be other affordable sources of credit available, many borrowers see moneylending as convenient, as they can often make repayments on the doorstep and few questions are asked about their employment or credit status.

However, it remains an extremely costly service. While the APR is usually at least 23pc and normally much higher, looking at total cost of credit shows just how expensive it is.

For example, one British-based firm that operates here, Provident Personal Credit, offers loans between €100 and €500, for which you can apply for online at its website.

For a loan of €400 paid over the course of 26 weeks, the firm charges 187.2pc APR, which means you will end up paying back €520.

In other words, this small loan will cost you €120.

If you pay the same €400 back over a period of 51 weeks, the APR reduces to 150.3pc, but the loan will cost you €212 because you are paying it back over a longer period.

To put this in perspective, €212 is the about same cost of credit as you will pay for a loan of €3,500 paid back over one year with National Irish Bank.

If you are in the unfortunate position to be considering approaching a moneylender in the first place, you should consider seeking out help first, such as from the Money Advice and Budgeting Service.

Irish Independent

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