A NEW money borrowing service that brands itself as the “antidote” to extortionate payday lenders is offering vulnerable people zero per cent interest loans of up to £1,000.
The Bank of Mum and Dad says it wants to stop rip-off lenders charging unaffordable interest rates, which can soar to more than 1,500 per cent.
To stop people using loan sharks, the lender lets borrowers apply for interest-free loans of up to £1,000 that must be paid back with 12 months.
Smaller amounts can also be borrowed, but the money must be used to make a purchase or for a service.
To qualify, the applicant must be facing challenges to their “dignity, freedom and sanctuary”.
Borrowers must also provide three months’ worth of bank statements to prove they can pay the money back, plus they’ll need two referees who can vouch for their circumstances.
Five steps to get yourself out of debt
IF you’re facing financial hardship, here are five steps to help get you back in the clear.
- Work out how much you owe: If your debt repayments excluding your mortgage take more than 20 per cent of your net monthly income you are entering a danger zone and must take steps to cut back.
- Budget: Taking the time to come up with an accurate budget to help keep track of your spending makes it easier to come up with a schedule for repaying your debts.
- Be disciplined: Don’t borrow more money or take on any debts until you have repaid what you already owe.
- Switch energy supplier and bank accounts: Shopping around for cheaper gas and electricity can save you hundreds of pounds.
- Move your debt onto a 0 per cent balance transfer credit card: This will give borrowers more time to pay off their debt and are interest-free for a set period of time.
The loans are awarded on a borrower-lender-supplier basis, which means the lender must be sure that the borrower can afford the repayments.
If a borrower can’t afford to pay the money back, the Bank of Mum and Dad says it can reduce the repayments and increase the lending period, but only in extreme circumstances.
The lender confirmed to The Sun that this will also be at an interest-free rate.
The Bank of Mum and Dad was set up by former Labour advertising guru Trevor Beattie, who runs The Jack and Ada Beattie Foundation.
Mr Beattie claims to have put in “thousands of pounds” of his own money into the lending service.
But he is also asking for donations from the public to help fund it, and hopes eventually it will become self-sufficient.
He told The Sun: “I came up with the idea of The Bank of Mum and Dad last year as an antidote to Wonga.
“People, through no fault of their own, find themselves trapped financially. They get let down by the system and need a bit of help.
“I heard someone say recently that its expensive to be poor because you can’t afford to pay it back immediately.
“The sharks start to own you and that is ludicrous.”
Mr Beattie says he wants the applicants to get “self-satisfaction” from helping others, after they’ve used the money to help themselves.
He said: “Say you’ve borrowed £300, the sooner you pay that money back, it goes to someone else.
“So then you’ve gone to solving your problem, to helping someone else.”
The Bank of Mum and Dad isn’t a bank and doesn’t hand out traditional loans, therefore it isn’t registered with the FCA.
As it doesn’t have a lending licence, your money and any agreement you sign up to is not protected should it shut down.
How do you apply to the Bank of Mum and Dad?
All applications to the Bank of Mum and Dad must be made online – click here for more information.
You can download and fill in the application form, which must be then sent off to email@example.com.
The application is then individually processed and The Jack and Ada Beattie Foundation decides who gets a loan.
There is no credit check when applying to the Bank of Mum and Dad, so it won’t affect your credit score.
Mr Beattie tells us they’ve handed out around 20 loans so far and claims the acceptance rate is “more than” 50 per cent.
He added that all the loans so far have been, or are in the process of being, paid back.
Who qualifies for a Bank of Mum and Dad loan?
On its website, the Bank of Mum and Dad says those who qualify must be “facing challenges to their dignity, freedom and sanctuary”.
When we put this to Mr Beattie, he said there are “many cases and examples” that would see someone eligible for a loan.
For example, he suggested someone who can’t afford to pay their rent due to the five-week Universal Credit wait for new applicants.
Other scenarios include someone who needs tools to set up a new business, or a parent who needs to buy their child new school shoes.
He went on to describe it as “getting by” money for both working people and those who are unemployed, as well as vulnerable people who need a temporary boost.
In terms of vulnerable people, this can include, but isn’t limited to, individuals suffering a physical or mental illness, or those who have just lost their job.
In more lender news, Piggybank went into administration this week leaving thousands of customers in limbo.
The Money Shop and Payday UK have launched payday loan compensation scheme – are you one of 2million owed cash?
Payday lenders have recently been accused of targeting students heading off to university by offering loans charging up to 1,294 per cent interest.