Are payday loan alternatives a viable option?

A new type of payday loan, piloted by London Mutual Credit Union (LMCU), has been shown to be a viable and sustainable alternative to mainstream products.

The new style of product, which was funded by Barclays Community Finance Fund and Friends Provident Foundation, has just had the results of its evaluation published.

The pilot came about after LMCU found an increasing use of costly payday loans amongst households already experiencing debt problems. It was also concerned that a growing number of its own members were taking out payday loans despite being able to access other affordable means of credit.

The pilot was set up in such a way to replicate the ‘ease, speed and instantaneousness of the high-cost payday companies’ but with interest charged within normal credit union rates.

Some of the key findings after 12 months of the product were:

• The affordable payday loan alternative proved to be extremely popular with around 500 applications per month. The average loan request was for £238.
• A total of 2,923 payday loans were made over the course of the pilot, to 1,219 different borrowers. This amounted to £687,757.
• The primary reason given for borrowing through LMCU was the low cost compared to other payday lenders (66%).
• Over two-thirds of the respondents said that they would be unlikely to borrow from other payday companies again.

The full report can be found here.