CASH-strapped families who turn to online lenders to find a quick-fix to their financial woes have been warned they could quickly become embroiled in a cycle of debt because of extortionate interest rates.
A credit expert from Hartlepool has warned that a £200 short-term loan could quickly rocket to up to £8,000 with interest rates as high as a staggering 4,000 per cent.
Citizens’ Advice Bureau (CAB) chiefs have expressed concern at the growing number of “payday loan” lenders offering cash-strapped residents a quick-fix.
But with interest rates for some lenders ranging between 3,000 and 4,000 per cent, the amount owed can quickly escalate if the period of the loan is extended.
Nationally, the CAB says the number of people who have run into debt after taking out payday loans has quadrupled in the past two years.
The Office of Fair Trading (OFT) last week launched a review of payday lenders after concerns that some may be taking advantage of people in financial difficulty, and vowed to come down hard on any firms found to be flouting credit laws.
Joe Michna, manager of Hartlepool’s CAB in Park Road, said: “In Hartlepool we are seeing a significant increase in the amount of people coming to us having fallen into difficulties with these lenders.
“Some of the interest rates are astronomical, and a short-term loan can end up being an extremely drawn out affair when it comes to paying it off.
“If, for example, someone borrows £300 and can’t pay it back, they can be offered a further loan to clear that one, effectively doubling the loan.”
Anne McGrath, manager of the Avenue Road-based Hartlepool Credit Union, said: “These firms have credit licences so they operate legally, but they can charge what they want.
“A £200 loan can rocket up to somewhere in the region of £8,000 in a relatively short space of time.”
It comes as the Government’s Business, Innovation and Skills (BIS) Committee released a Debt Management report today, calling for a clamp down on “opaque and poorly regulated” commercial debt management companies and payday lenders.
The committee found that in the worst cases, “over-indebted, vulnerable and desperate” people have even lost their homes as a result, and it called for the Government to limit the rolling over of payday loans after it was revealed that some customers have more than 20 at a time.
Committee chairman Adrian Bailey said procedures should be put in place to suspend lenders’ credit licences if need be and make clear the total cost of the loan including interest charged and fees, including late payment penalties.
Anyone in financial difficulties can contact Hartlepool Citizens Advice on (01429) 273223 or Hartlepool Credit Union on (01429) 863542.
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