There are 420 credit unions around the country, of which 120 are lending from the Growth Fund

There are 420 credit unions around the country, of which 120 are lending from the Growth Fund

However, five years ago the government made ?100m available through the Growth Fund, which has enabled credit unions to become more flexible, start assessing risk properly and lend to people without a previous membership or savings record.

Mark Lyonette, chief executive of the Association of British Credit Unions, says a ?300 loan from a credit union would save a borrower ?200 on the cost of a typical doorstep loan. “We are encouraging borrowers to use some of that difference to start saving: not all of it, just ?2 or ?3 a week. It means that by the time the loan is paid off, they have a pot of about ?50 which can make all the difference to their self-confidence and esteem,” he says.

To find out more go to but remember: you will still have to become a member of the union to borrow, but in some cases you will no longer have to save with it.

My Home Finance

This scheme was launched in the autumn of 2010 to lend to people who are financially excluded and normally have no option but to borrow from payday and door-step lenders. The lender charges a typical interest rate of 69.5% APR, which might sound high compared to credit unions, bank loans and even credit cards, but Tess Pendle, head of My Home Finance, says it reflects the risk of lending to higher risk customers.

Clients are interviewed by a My Home Finance adviser about their finances and their bank statements are checked to work out what size of repayments they can afford. Only those who are bankrupt or simply cannot afford a loan are likely to be refused.

There are just 10 branches so far, all in the Midlands, but Don and Liz Hackett, who have taken out three loans with My Home Finance, think the scheme should be extended nationwide. The Coventry couple, aged 64 and 55, are older than the majority of My Home Finance clients: Mr Hackett retired early from his job as a lorry driver through ill health.

He tried to borrow from a high street bank four or five years ago, but because the couple were on benefits and his credit record was bad, his application was rejected. The couple have borrowed from doorstep lender Provident Financial, and are still paying off a ?300 loan taken out a year ago, at the rate of ?10 a week. But My Home Finance is much cheaper, and they have a good relationship with their adviser.

Mr Hackett says: “We have just taken out a ?389 loan to pay for Christmas presents for the grandchildren (we don’t buy presents for the grown ups) and food. We’ve got 10 people coming for Christmas Day. One of my sons is getting married next summer, so if we’ve paid off this loan by then, we’ll take out another one for the wedding.”

What else to avoid

¦ Weekly payments shops such as Brighthouse or PerfectHome. They enable you to buy electrical goods and furniture immediately and pay in instalments, but the total cost is far higher as a result. They also try to sell you accidental damage and theft insurance, which pushes the total up astronomically. At PerfectHome, for example, the label on a Hotpoint fridge/freezer says the cost would be ? at % APR, and the customer could buy this over payday loan stores in Port Clinton 156 weeks at ?5.34 a week – a cost of ?. The “optional” Coverplus policy costs a further ?, taking the weekly cost to ?9.06 or ?1, over the three-year repayment period.

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