Personal loan providers should help poor credit customers

Mon, 18 Jul 2005

Personal loan providers should help people whose loan applications are rejected to improve their poor credit ratings, a new report suggests.

According to the Economic and Social Research Council (ESRC), better cooperation and advice to those with adverse credit problems could help in the prevention of high levels of poor credit ratings.

Many people with adverse credit ratings have no choice but to apply for a personal loan from 'sub-prime' personal loan providers, the report suggests.

These 'sub-prime' personal loan providers offers personal loans to people with poor credit whose personal loan applications are rejected by mainstream personal loan providers. The 'sub-prime' personal loan providers then charge very high interest rates.

The report suggests that traditional personal loan providers should work with high-interest personal loan providers in order to prevent those with poor credit ratings from raking up more debt.

It also criticised the "ratchet" system used by 'near-prime' personal loan providers, those who advertise in daily newspapers and on daytime TV.

This system increases repayment charges if a repayment of the personal loan is missed.

These providers should work with banks to help personal loan borrowers "graduate to mainstream credit", where interest rates are much lower, the report suggested.

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