The future of Credit is Punk.
We see a world where everyone can easily lend to each other, at fair and affordable rates, never overpaying for debt. We all need to borrow money at some time, what we don’t need is to overpay for this debt.
Most of us have lent or borrowed money from friends and family at some point in our lives, whether it’s borrowing £20 from a mate until payday, or borrowing £20k from your parents to put a deposit on a flat. Borrowing money from friends and family makes sense. It’s cheaper and more flexible than turning to traditional financial lenders and there’s none of the faff associated with long-winded applications and credit scores.
While many people may be comfortable borrowing from their family, like most things, it doesn't come without drawbacks. The main thing that holds people back from borrowing money from friends and family is the hassle and awkward baggage that comes with it.
It’s not breaking news that personal finance is an awkward topic to bring up around friends and family and is mostly avoided by households in the UK.
What holds many people back may be the doubt that the person receiving the loan will be able to pay it back. Then there's the hassle of asking for repayments, disputes around the terms, and other awkward money conversations. These issues can ruin your relationships with others, with 50% of people stating that they have previously regretted their choice to lend and borrow between friends and family.
Even with all these barriers, people make informal loans to each other all the time. In fact, in a recent survey, we conducted more people had borrowed from Friends and Family (67%) compared to any other way. The next most popular were Credit Cards (63%), Buy Now Pay Later (58%) and Bank Overdrafts (50%). Of course, some of this may be small sums between friends, ‘£20 ‘till payday’, but it’s also large sums too. For example, the bank mum and dad lend 6.3bn per year (making it the 10th largest mortgage lender in the UK).
So, if we consider that over 40 million people regularly use consumer credit options as a feature of everyday life, you can see how giving people an easier way to lend and borrow money with friends and families could make a huge difference to what people pay for debt.
Why does standard lending fail many?
Lots of people find it hard to even access or are even excluded from affordable credit.
Traditional borrowing is backed by Credit scoring, a system used by creditors to decide how much risk it is to lend to you. Credit scores are built on historic credit data and generally the higher it is, the less of a credit risk you are. If your score is below a certain number, you could be turned down for a loan or charged more for the service.
This system works for those with high credit scores; they're seen as less risk and pay lower rates back to the creditor. However, this demographic is usually older, have had an established credit history for several years, they have a mortgage, credit cards or some other form of credit product.
What about everyone else?
One of the leading credit bureaus Experian quoted that 8.3 million people are suffering from financial exclusion. This includes young people who haven’t yet built up a history of credit, people who’ve chosen to avoid debt, recent immigrants or ex-pats whose credit profile doesn’t move with them when they move country.
That is why the world needs an alternative. A way to make lending and borrowing with friends and family easier and less awkward, so everyone can access affordable loans and no one has to overpay for debt.
So, is that what Punk Money is doing?
Yup, pretty much, we've developed a way to create simple, friendly (but formal) loan agreements between friends and family. We take the hassle out of social loans. Instead of turning up with a 16-page contract or relying on a handshake, you just set it up in under a minute. Saving you time, awkwardness and most importantly, sky high-interest rates. Best of all these informal loans can go towards building your credit score, so we’ll be helping the 8.3 million people currently excluded access the important financial opportunities they need.
The stigma of asking a friend or family member for help financially is still there, so we’re making it easy to say thank you by repaying your friend or family member more than they lent you by adding interest. This stops the loan from becoming a one-sided deal: you're helping the person lending as well as they're helping you. It’s a win-win.
"We're not reinventing borrowing but giving people an easier way to do it. Our app takes the friction out of borrowing and lending money to friends and family away. Now, people can lend and borrow money from each other with the confidence of contractually agreed loan terms and the security of automated repayments which will build their credit scores." Ewan Dickie, founder and CEO of Punk Money.
Everything - the loan calculator, the contract agreement, all the repayment reminders - are built into and handled by the platform. We do the heavy lifting when it comes to communication; we handle reminders and automated payments. So all you have to do as a good friend and punk money user is make sure you don't borrow more than you can repay. And we've made sure our agreements are versatile to suit whatever you might need it for - the amount could be anything from cash to tide you over till the end of the week to something as significant as a housing deposit.
Grow your credit with people you know
For the first time, repaying your friends and family will go towards building your credit score.
We see this as invaluable. Helping everyone get onto the credit ladder to secure their future, knocking down all the barriers to people getting what they deserve.
We're in a cost of living crisis. The cost of basic things like food and electricity is going up. Many people who aren't in the financial position to weather that storm will struggle.
We can't help with the cost of living going up, but we can help bring the cost of credit down.
At the same time, furlough saw lots of people saving more money than ever before, 25% on average, so there is more money sitting around in savings accounts than there used to be.
So, now is the time to switch out your credit cards, and get out of your overdraft. Speak to a friend, and see if they can lend you the money. Then, you repay them (and make sure you can!), and we'll build your credit score in the same way as if you were repaying your credit card. Don't pay interest to the bank; pay the interest to your friend, whatever the mates' rates are.
We're opening a new alternative for people to borrow money at the most affordable rates, cutting out the middleman who've been eating up all the profits. We believe this product can break down the barriers of what it means to borrow money by unleashing the power of the money that sits in saving accounts across the world." Ewan Dickie, founder and CEO of Punk Money.