TSB to Offer Short-Term Loans As An Alternative to Overdrafts, Payday Loans

TSB customers will soon be able to take out short-term loans from the bank rather than dip into their overdrafts or turn to payday lenders or loan sharks, the bank announced.

TSB recently reduced its headline rate for personal lending, from 3.2% to 2.9%. Now it will launch a range of short-term personal loans for families struggling to make ends meet.

The bank currently offers personal loans of between £7,500 and £50,000 for up to five years. While it didn’t specify the amount of the new short-term loan products, they’re expected to be for less than £7,500 and last for up to a year.

TSBC’s new chief executive Debbie Crosbie said she wanted to offer a borrowing alternative for customers who might otherwise use their overdrafts.

“Overdrafts are great for emergency borrowing. But frankly for borrowing over a longer period of time—which is when these products get expensive—we would really want to work with our customers to give them different solutions,” she said.

TSB will hike its overdraft rates to 39.9% from 2 April 2020, in response to new Financial Conduct Authority (FCA) rules designed to increase the simplicity and transparency of overdraft fees. Nearly all lenders have announced similar price hikes.

The bank’s new range of lending products are part of shifting strategy that has seen TSB focus more on just managing families than wealthier middle-class customers with savings. In addition to cutting the interest rates on personal loans, the bank will allow customers two repayment holidays a year on them.

“What that means is that in the summer holiday or Christmas months, our customers can take a payment holiday. It's a feature that we've researched really well,” Crosbie said.

Instalment plans will also help households spread the cost of big-ticket items like televisions across several months.

Crosbie said TSB wanted to become more approachable for consumers, who might otherwise turn to payday lenders.

“We've been told one of the biggest reasons that some people didn't previously come to banks for loans—and instead went to the likes of payday lenders—is that they weren't confident they were going to get approved or be dealt with in a sympathetic and down-to-earth fashion,” she said.

“We make sure our staff are sympathetic, they're helpful, they're not in any way condescending and they're not judgmental.”

TSB’s new short-term lending products will fill a gap left in the market by the collapse of a number of payday lenders over the last two years. UK’s most notorious payday lender, Wonga, toppled in August 2018, amid tightened regulation and soaring numbers of consumer complaints.

2019 was the collapse of CashEuroNet, which traded under the brands QuickQuid and OnStride; 247 MoneyBox; and PiggyBank. Last week Amigo, which specialises in short-term guarantor loans, announced it was putting itself up for sale, following a flurry of consumer complaints and increased scrutiny from regulators and the media.

However, some customers with poor credit ratings may struggle to be approved for loans from TSB.

Credit unions may be alternative for those customers. The FCA has called on the government to ease regulations on credit unions so they can offer a wider range of lending products for customers who might otherwise turn to payday loans, including those with poor credit histories. Credit unions have less stringent lending criteria than commercial banks like TSB and have traditionally offered loans for smaller amounts.