Maximise your income

Are you getting everything you’re

entitled to? If you’re not sure, make

an appointment with us for a bene-

fit check.

The Scottish Parliament Information

Centre estimates that billions of

pounds worth of state benefits and

tax credits remain unclaimed every

year.

In addition to state benefits, there

are other ways to maximise your

income, for example:

Take in a lodger.

Ask our grown-up children

who live with you to con-

tribute to the bills.

Switch services. You may

not be getting the best

deals for your insurance,

phone, broadband, elec-

tricity or gas suppliers. Ask

us for advice.

Set up Direct Debits for

your bills, to avoid late-

payment charges and get

discounts on some utility

bills.

Some people find it difficult to open

a standard current account, whilst

others may be reluctant to open one

for fear of getting into debt due to

bank charges.

You may not be aware that, since 1

January 2016, new basic bank ac-

counts have been made available to

everyone and are free of all charg-

es. These accounts offer no credit

card and no overdraft to avoid the

risk of debt.

They are particularly useful for those

who don’t already have a bank

account, and those who can’t use

their existing account due to finan-

cial difficulty.

These accounts give you a debit card

so you can make payments in shops

and online, access the ATM network

and set up direct debits.

Ten banking groups offer these fee-

free accounts: Barclays, the Co-

operative Bank, HSBC, Lloyds Bank-

ing Group (Bank of Scotland, Halifax

and Lloyds), Clydesdale Bank and

Yorkshire Bank, Nationwide, RBS

Group (NatWest, Royal Bank of

Scotland and Ulster Bank), Santan-

der, TSB and Virgin Money.

You will need a form of ID to open a

basic bank account but benefit

entitlement letters often suffice if

you don’t have a passport.

If you don’t already have one, open-

ing a bank account is a good idea

given that the Government has

made bank accounts a requirement

for all claimants of the new benefit,

Universal Credit, which aims to

replace all means-tested benefits

within the coming years.

Basic Bank Accounts

Community Help & Advice

Initiative (CHAI)

ELS House, 555 Gorgie Road

Edinburgh EH11 3LE

Phone: 0131 442 1009 Email: chai@chaiedinburgh.org.uk Web: www.chaiedinburgh.org.uk

July 2017 Volume 1, Issue 1

Financial Inclusion

& Capability Service

Newsletter ABOUT US

We are a registered Scottish

charity providing free and

independent advice to

people affected by housing,

debt and benefit issues in

Edinburgh and Midlothian.

Our new Financial Inclusion

and Capability Service

(FICS) Project aims to lift

individuals out of financial

hardship to prevent the use

of illegal and unaffordable

sources of credit.

The project is funded by

Trading Standards and is

delivered by CHAI in con-

junction with NHS Lothian.

September 2017 Issue # 2

INSIDE THIS ISSUE

Be Credit Wise! 2

A Comparison of

Credit Methods

2

@CHAI_FICS

Be Credit Wise!

There are many ways to bor-

row money. Some ways of

borrowing are cheaper than

others, and some lenders are

downright illegal such as loan

sharks. To help you become

credit wise, we’ve outlined

below the potential dangers

associated with various ways

of borrowing.

PAYDAY LOANS

Payday loans are short-term

loans, which are intended to

be cash advances on the salary

you are expecting. You need to

be aware that payday loans are

one of the most expensive

borrowing options.

If you borrow £100 for 30 days,

you can typically pay £125 in

total, which equates to an APR

(Annual Percentage Rate) of

more than 1,000%.

These significantly high inter-

est rates are often made worse

by additional fees, charges

and penalties for late pay-

ments. If you are late with

your repayments, some pay-

day lenders allow you to bor-

row more money or ‘rollover’

your loan, thus further increas-

ing your debt to crippling lev-

els.

Payday loan companies often

use continuous payment au-

thorities (CPA). Unlike a direct

debit, a CPA gives lenders per-

mission to take payments

whenever they want, and take

payments for different

amounts, without consulting

you beforehand, which can

lead to nasty surprises.

CREDIT CARDS

Credit cards allow you to pur-

chase things now and pay lat-

er. It can be a useful way of

getting credit if you are able to

pay off the balance every

month.

Only paying the minimum

monthly amount, however,

could leave you with spiralling

debts due to very high interest

rates and late payment fees.

Some credit cards offer an

interest-free period. This may

be useful if you wish to borrow

for a short period of time. But

if you can’t repay the credit

within that free-interest peri-

od, your debt will increase very

quickly as interest rates usually

rocket once this period is over.

STORE CARDS

Many big stores offer finance

deals or store cards. Like credit

cards, they tend to charge very

high rates of interest if you

don’t repay in full each month.

Both credit cards and store

cards would charge you a high-

er amount than a bank or a

credit union.

BANK OVERDRAFTS

Bank overdrafts can be an

expensive way of getting credit

as they often incur hefty fees

and interest, especially unau-

thorised ones which lead to

even higher penalty charges.

DOORSTEP LENDERS

(HOME CREDIT)

Doorstep lenders lend small

amounts of money over short

periods to people on low in-

comes or with poor credit

histories. A local agent calls at

your home each week to col-

lect the repayments. They

often charge very high rates of

interest.

Because you see to the same

debt collector every week,

some people end up feeling

indebted to them and may

feel pressurised to take out

further loans or agree to un-

affordable repayment plans,

leaving them unable to pay for

essential things like rent and

utility bills.

@CHAI_FICS

“If you must borrow

money, there are

safer and more

affordable

alternatives such as

credit unions.”

Page 2

Issue # 2 - September 2017 Page 2

HIRE PURCHASE

If you need to buy expensive

household goods, it may be

tempting to get credit from a

hire purchase company such as

Brighthouse. But be aware that

it is usually a more expensive

way to borrow, and you will

end up repaying a lot more

than what the item was worth

in the first place.

Don’t forget that the agree-

ment is for hire only: you don’t

own the goods until your final

instalment, and for the dura-

tion of the contract, you are

liable for the costs of repairing

the item if it breaks down. The

item could also be repossessed

if you are behind with your

payments.

To finance household goods,

you could apply to the council’s

Scottish Welfare Fund for a

grant, or to the DWP’s Social

Fund for a Budgeting Loan. You

could also apply for a charity

grant. For a full list of charities:

www.turn2us.org. Alternatively

you may be able to find second

-hand goods in local charities or

on websites such as Freecycle.

CREDIT UNIONS

If you must borrow money,

there are safer and more

affordable alternatives such

as credit unions. A credit un-

ion is a self-help co-operative

where members pool their

savings to provide each other

with credit at a low interest

rate. They ask you to save so

that they have money to lend

to people. They also encour-

age people to manage their

money better. Credit unions

can lend smaller amounts of

money than most banks and

other lenders will. Most credit

unions charge low rates of

interest and the amount of

interest they can charge is

capped by law (3% a month or

42.6% a year APR).

LOAN SHARKS

Loan sharks are people who

lend money without the cor-

rect legal permissions. They

charge very high rates of inter-

est and don't give you much

paperwork to confirm the loan

arrangements.

Loan sharks often take other

illegal action to collect the

money they lent you like

threatening to harm you or

take things that belong to you.

If you have come across a loan

shark, seek help: call the Gov-

ernment’s helpline on 0800

074 0878 or visit:

www.tsscot.co.uk/loan-sharks

To help you better understand the cost of credit, we’ve compared the cost of borrowing £1,000 across

various credit methods. The APR (Annual Percentage Rate) shows you how much you end up paying the

lender for each £1 you borrow: so if the APR is 20%, you pay £200 for every £1,000 you borrow.

A Comparison of Credit Methods

Source: Money Advice Scotland.

@CHAI_FICS

Credit

Method

Credit Card

(minimum

payment)

Hire

Purchase

Home

Collected

Loan

Payday Loan Store Card Credit Union Credit Card Bank Loan

Amount of

Repayments

(per month)

2% of balance £54 £152 Btw £633.33

& £533.33 £112 £52 £91.92 £45.44

Cost of Credit £1,959 £937.50 £820 £600 £342 £250.30 £103.04 £90.54

APR Not applicable 64.7% 272.2% 2261% 30% 24.9% 18.5% 8.8%

Total Repaid £2,959 £1,937.50 £1,820 £1,600 £1,342 £1,250.30 £1,103.04 £1090.54

Length of

Loan

26 years and

5 months 3 years 1 year 3 months 1 year 2 years 1 year 2 years