WEEKLY payment store BrightHouse is to offer loans charging up to 149 per cent interest meaning customers will pay back more than DOUBLE the amount they borrow.
The new loans, which will be offered to existing customers over 18 months, are part of BrightHouse’s plan to shake-up its business.
Earlier this week the rent-to-own firm announced plans to shut 30 stores and axe 350 staff.
In letters to staff, BrightHouse said the new cash loan service – which has been trialled in 14 branches in the north east of England for the last three months – was part of a plan to “exploit new opportunities” in the business.
The loans will be between £200 and £500 and customers will have to pass an affordability test to get the cash.
A customer taking out a £500 loan would pay back £1,272 in total – more than double the amount borrowed.
In comparison, a 99.9 per cent loan from 118118Money over 18 months for the same amount of cash would cost £977 – £295 less.
Customers will need a bank account to open an account with BrightHouse.
How to find the cheapest loan or credit card if you've got a poor credit history
LENDERS offer the top rates to the applicants with the highest credit scores. If you're got a poor credit history then getting an affordable loan can hard.
Firstly, only take out a loan or credit card if you need to make an essential purchases, such as your freezer is broken or your car won’t start and you need cash to fix them.
How to find the cheapest ‘bad credit’ loan or credit card
Compare rates using a comparison website like moneysupermarket.com or money.co.uk.
Use MoneySavingExpert’s eligibility checker to see if you’ll get accepted. It does a ‘soft’ credit check, so it doesn’t damage your credit score any further and gives you a rating based on how likely you are to get accepted.
Is a loan or credit card best?
Compare the total cost of your borrowing on both compared with how much you can afford to pay back each month to calculate which option might be best for you.
Andrew Hagger, founder of MoneyComms.co.uk, warned that BrightHouse’s loan should only be used in an emergency – and that there are cheaper alternatives available.
He said: “I’d recommend that anyone thinking of signing up for a loan at 150 per cent APR looks at the total amount they will have to repay on top of the amount they are borrowing – hopefully this will scare them and make them see financial sense.
“Unless it’s an essential purchase – perhaps a cooker, fridge or washing machine then I’d suggest people give this expensive credit option a wide berth.
“There are cheaper borrowing options for people with poor credit records – for example, a Vanquis Credit Card will charge between 39.9 per cent APR and 69.9 per cent APR or a loan from 118118Money is 99.9 per cent APR.
Debt campaigner and founder of the DebtCamel website, Sara Williams, said: “The new BrightHouse loans will be very expensive.
“In 18 months you will be repaying a lot more than the amount you borrowed. That would be illegal for a payday loan but it isn’t for an 18-month loan.
“I think the Financial Conduct Authority should look at extending the price cap to cover these medium-term loans.”
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BrigthHouse’s change in business policy follows a crackdown by the Financial Conduct Authority (FCA) on rent-to-own firms.
The FCA has promised to cap the cost of domestic goods bought through rent-to-own shops from April, following The Sun’s Stop The Credit Rip-Off campaign.
We’ve heard from hundreds of customers whose debts have spiralled out of control after being allowed to take out more policies than they could afford, while some were hounded by shop staff when they couldn’t keep up with repayments.
One customer told The Sun how she was chased for repayments for a washing machine while she was heavily pregnant.
A BrightHouse spokesperson said: “Following a trial in the North East of England last year, our BrightLoans service will soon be extended to selected, existing customers around the UK.
“Customers will be required to undertake an affordability assessment, as is the case when applying for any additional BrightHouse product.
“This will ensure that those applying for a loan can afford it.’
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