100,000 families crippled by £82 million loan shark debt
By myfinances.co.uk staff
Over 100,000 of the UK's poorest families will spend 2010 crippled by a combined debt of £82 million because they have borrowed money from loan sharks to pay for Christmas 2009, a new report reveals.
The Real Cost of Christmas report published by think tank the Financial Inclusion Centre, and commissioned by housing association Circle Anglia, found that an estimated £29 million in illegal doorstep loans were taken out over the holiday season.
The housing association said it commissioned the research after becoming concerned by the increase in the number of its residents being targeted by loan sharks.
Evidence shows that, on average, people borrowed nearly £300 from loan sharks to cover the cost of Christmas, but with exorbitant interest rates averaging a whopping 825% (some rates can reach as high as 1,500%), they will pay back over £800.
The average loan repayment period is a year, meaning that a large number of Britain's poorest households will still be paying off their debt in Christmas 2010.
The report also found that illegal loan shark activity is on the up in the UK.
Over the last three years the estimated use of loan sharks increased from 165,000 to over 200,000 households per annum - a 22% rise. As the recession continues to bite, loan sharks have moved in with loans from illegal doorstep lenders at Christmas time accounting for up to half of all loans borrowed from loan sharks in 2009.
Andy Doylend, executive director 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.
A simple step such as borrowing from a credit union or a community finance organisation instead of a loan shark could have saved the typical low income household £500 in debt repayments - more than enough to fund the whole of Christmas 2010 as well."
"The challenge in 2010, for all of us in the housing sector, is to make sure that we reach out to our residents to make them aware of the availability and accessibility of affordable finance and to help them manage their finances better."
Consumer minister Kevin Brennan said the government had created specialist Trading Standards illegal money lending teams around the country to tackle illegal loan shark operations.
He added: "The teams have helped more than 10,000 victims and written off more than £30million of illegal debt.
"They have already secured around 50 years in prison sentences, helping to rid communities of these criminals. I'd encourage anyone who feels trapped by a loan shark to get help and advice as soon as possible."
Faisel Rahman, managing director of ethical lender Fair Finance said: "Millions of pounds are being taken out of the pockets of the poor by illegal and extortionate lenders every year.
"As the credit crunch continues, more people are being left behind by mainstream financial services. This, coupled with the downturn on the economy, means 2010 promises to be a very difficult year for low income and vulnerable communities.
"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."
Anyone concerned about paying back loans is advised to speak to organisations such as the Citizen's Advice Bureau, the National Debtline (0808 808 4000) or Consumer Credit Counselling Service (0800 138 1111).
Meanwhile, victims of loan sharks are encouraged to contact the Trading Standards Illegal Money Lending team on its 24 hour confidential hotline 0300 555 2222 or text 'loan shark' and your message to 60003.
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