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Thousands of households have taken out loans with interest rates averaging
825% during "the worst Christmas in a generation" for illegal doorstep lending,
according to a new report.
The Real Cost of Christmas, commissioned by affordable housing provider Circle
Anglia and written by the Financial Inclusion Centre, found that more than
100,000 of the UK's poorest families will spend 2010 crippled with a combined
debt of around £82m after borrowing money from loan sharks to pay for Christmas.
The value of the loans is an estimated £29 million, but average interest rates
of 825% will mean that people end up paying nearly three times the initial
amount they borrowed.
The report says that on average people borrowed nearly £300 with an average
repayment period of one year.
Andy Doyland, chief executive of operations at Circle Anglia, said: "These
figures are very concerning and demonstrate the scale of illegal lending across
the UK.
"We hope that by turning the spotlight on loan shark activity we can help more
people to seek help and get sound financial advice."
The report also found that illegal loan shark activity is on the rise. Over the
past three years the estimated use of loan sharks has increased from 165,000
households a year to more than 200,000, a 22% rise.
Christmas time accounts for up to half of those loans.
In 2007 the government set up a national network of trading standards teams to
tackle illegal money lending around the country.
It says this network has since helped more than 10,000 victims and written off
more than £30m of illegal debt.
Circle Anglia said the credit crunch has forced more people to turn to such
lenders after the availability of mainstream credit dried up.
It added that a typical low income household could save £500 in debt repayments
by going to a credit union or community finance organisation instead.
Faisal Rahman, managing director of ethical lender Fair Finance, said: "Social
landlords should be active in developing local partnerships and promoting
affordable alternatives to extortionate and illegal lenders, because every
person deserves access to fair and affordable credit."
Source:
Getting Paid
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