While mainstream banks have been obliged to give customers payment holidays on mortgages and discounted three-month overdrafts, less support has been offered to so-called subprime borrowers who often need extra cash just to stay afloat
LONDON - When a payroll glitch left Natalie Gallagher so short of cash this month she couldn’t afford her bus fare to work, she turned to her usual lender Amigo for an emergency top-up loan.
. “The bottom line is that there’s nowhere for these people to go,” Roger Gewolb, founder of loan comparison site FairMoney said. “The consumer lending market has come to a standstill.” “An Amigo loan is intended for considered purchases, rather than day-to-day expenses; this is why the minimum loan we offer is 1,000 pounds .”While some low-income borrowers just struggle to budget, others have been blacklisted by the mainstream financial system and rely on alternative credit providers such as guarantor or doorstep lenders to make ends meet.
The subprime credit market had already shrunk in recent years after tighter regulation and interest rate caps pushed a slew of payday lenders out of business. “High-cost short-term credit may seem to offer a short-term financial stopgap but too often it can become an expensive repeat trap,” said Sue Anderson at debt charity StepChange.
Lenders are prohibited from selling credit to anyone they don’t think can pay it back, which is likely to exclude many people who have lost their jobs so far in the pandemic. Based on data from 2018 and 2019, the organisation said it took an average of 2.75 years for someone targeted by predatory lenders to engage with the authorities, suggesting any spike in loan shark activity now might not be visible until 2023.
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