The Christmas period is meant to be a time of celebration for everyone, but it can be a cause of much distress to some, especially those that are experiencing financial difficulties.
This is because there is huge amount of pressure on people to spend money at this time of year, be that through buying presents for friends and family or through simply trying to make an appearance at all of the nights out organised by friends and colleagues.
It is thought that many people will turn to payday loans to see them through the Christmas period but some experts are warning against this due to the high interest rates charged by alternative lenders.
Frances Coulson, president of insolvency industry practitioners’ body R3 has warned: “There are still huge numbers of people who will struggle to afford Christmas and may well look to short-term loans and credit cards.” She added: “They should be wary of the high interest rates that often accompany these products, as this will leave them lumbered with Christmas debt long into next year.”
The main area concern is around the amount of interest charged by payday loan providers, which can be as much as 4,000 per cent annually. However, these loans are designed to be taken out over a period of no longer than 30 days and this generally equates to a more manageable figure of around £20 in interest charges for every £100 borrowed.
The real problems arise when the debt is carried over into a second and possibly a third month as consumers can find themselves paying anywhere in the region of £100 per month in interest fees without actually paying anything off their principle debt. In addition, as many payday loans do not require a credit check then people can take out a number of these loans at any one time, a recipe for a debt disaster!
However, payday loans are the acceptable face of the high interest loans market and the public are being warned about illegal money lenders, the real ‘loan sharks’.
Illegal money lenders operate outside of the law and take no notice of financial industry regulations, something that means borrowers are not protected. This, in turn, means that they will charge borrowers extortionate interest rates that are above even the top-end payday loan companies’ rates of 4,000 per cent.
This is why they prey on the most vulnerable in society and offer money to those that are in desperate need of cash but cannot raise fund through legitimate sources such as overdrafts, credit cards, bank loans for bad credit or even payday loans.
However, the fact that illegal money lenders are not regulated by any financial body can work in the borrower’s advantage as this also means that they have no obligation to pay back the debt and the loan shark cannot prosecute as they have no legal right to recover the debt. This is something all loan sharks are well aware of and that is why they will often resort to threats, intimidation and violence when demanding payments.
The thing to remember is that, if you have taken money from an illegal money lender then you have not broken the law, but they have. If you do suspect that you have borrowed money from a loan shark or that an illegal money lender is operating in your area then you can report them, in complete confidence, to your local Trading Standards team or the Illegal Money Lending Team on 0300 123 3311.