The cost of credit

Lone parents on low incomes have long been accustomed to making their money go round, and employ sophisticated strategies to make sure bills are paid and food is put on the table. From spreading money thinly, such as shopping more often, buying cheaper brands, making sure the family eats together, to limiting the demands of children, lone parents are some of the best financiers in the country.

Low incomes, unforeseen circumstances, lack of savings and low financial literacy when it comes to understanding the financial products available, are all contributing factors to the money running out. When it does, mail-order catalogues, home credit (or ‘doorstop lending’), pawnshops, cheque-cashing centres, the Social Fund and Credit Unions are often accessed to buy much-needed goods.

Debt can be a necessary evil in the current economic system, but do think through what you are buying and why. In a consumer-driven world, it is too often the case that people feel pressured to buy the newest, most expensive products to prove their worth. Keep shopping around for the best deal for you, and use credit only when there are truly no alternatives.

Lone parents can face very limited choices in the types of credit they can use, and many fall prey to illegal lenders, or decide to use high cost forms of credit such as doorstop lending. Two single parents offer their experience of companies that will lend vouchers and money to vulnerable groups of people. “Single parents never see a lump sum so when one is offered it is so tempting, especially at Christmas”.

Home collected credit is immediate, accessible and the weekly amount to pay back can seem very manageable. They also offer a personal touch that many fear they will not find at a high street bank. “If you know your agent, they’re fine, and won’t be rude or hassle you for late payments, but people don’t realise about the interest rates”. This is an important factor to take into consideration when borrowing from any source. Make sure you know how much credit is costing you. Take the following example from BrightHouse for a 37” Flatscreen TV, where payments are made at £8.12 per week over a period of 156 weeks:

BrightHouse cash price            £879.93

BrightHouse final cost to you  £1266.72

This means you will have spent an extra £386.79. A similar TV from Argos costs £799.99, making a difference over the BrightHouse credit price of £466.73.

Is it possible to avoid borrowing? If a family is able to make savings, they are more likely to be able to meet the additional or unexpected costs that might otherwise cause hardship.