UK workers could save more than £250m a year in interest rate charges if companies introduced a payroll loan scheme, according to the Chartered Institute of Payroll Professionals (CIPP).
An initiative ran by the Co-op offers a practical alternative to high-cost forms of borrowing, which can adversely impact on the lives of individuals and their families, by providing colleagues with the ability to repay loans direct from their salaries.
Financial wellbeing company Neyber, which has been introduced alongside the Co-op’s two credit unions, offers loans that have a typical rate of 7.9 percent APR for which more than half of Co-op colleagues qualify. Because repayments are paid direct from salaries, the Co-op’s colleague loans provided by Neyber and by the Co-op Credit Union and the Value Credit Union, offer competitive rates of interest.
The CIPP said that as personal debt continues to rise, it is estimated around 300,000 people a month take out high-cost short-term credit. At the end of 2016, 1.6 million people had high-cost credit debt with the average loan just over £300.
Around one in eight of the borrowers were in arrears, according to the Financial Conduct Authority. The CIPP said if that interest was only 7.9 percent APR instead of the current capped high-cost credit loan rate of £24 per £100 borrowed for 30 days, then UK workers could save a total of £252m per year.
Helen Webb, chief people officer at the Co-op, said: “We wanted to offer colleagues more practical alternatives to high-cost borrowing as we are aware that some colleagues have personal debt issues that can lead to stress and impact on home and working life. Because the loans are paid directly from salaries they are almost certainly at a lower interest rate than colleagues would pay on loans from other lenders.
“That is why we have partnered with Neyber to provide more help for colleagues who want to consolidate their debts. Neyber will work alongside Value Credit Union and Co-operative Credit Union.”