The Rise of the Loan Sharks
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I have once before mentioned the perils of so called ‘loan sharks’, although that was in the general terms available when other forms of credit were more plentiful. Now, with lending conditions worsening, government and debt charities alike a reissuing warnings to those who may be tempted to use extreme measures to secure credit.
The problem is that doorstep lenders and loan sharks are moving into the space left by Britain’s high street banks. The more banks tighten their terms for lending the more unofficial lenders rub their hands with glee.
Debt campaigners have seen hordes of clients forced to borrow at extortionate interest rates because they have had their credit cards cut off or have been refused loans as the country’s biggest banks react to the global liquidity crisis.
Banks have scrapped 125% mortgages, increased the minimum deposit needed for first-time mortgages and reduced credit card limits as the banks’ own borrowing costs rocketed in response to a worldwide collapse in inter-bank lending.
Last month Egg, the online lender, cancelled the credit cards of more than 160,000 customers. Many lenders, including Nationwide, Britain’s biggest building society, are charging higher rates for borrowers who do not have a 25 per cent deposit. At the same time, Provident Financial, the country’s most prominent doorstep lender, has predicted a booming 2008. The lender said this month that the number of people who fell into the ‘non-standard’ category of borrowers had grown to about ten million.
The Financial Services Authority (FSA) estimates that up to seven million people have difficulty gaining mainstream credit, and Citizens Advice reported last week that mortgage arrears problems had shot up by 35% in the first two months of 2008, compared with the same period last year. Citizens Advice bureaux said that they had dealt with 215,000 new debt problems in January and February.
Doorstep lending, which usually involves small loans on interest rates of 100 per cent or more, with payments collected each week by a local agent, is legitimate, but debt charities fear that unauthorised lenders are also capitalising on the increased number of people who have found their usual lines of credit diminished or cut off.
The problem with this type of lending is that for those desperate for money no rational and reasonable advice will dissuade them from taking any opportunity available to get the cash into their hands as quickly as possible, no matter what the consequences. Awareness of the problem coupled with sensible legislation from government and support links from charities is the best way to deal with those who have got themselves into serious difficulties. If you have fallen victim to an extortionate lender, either legitimate or illegitimate, contact the Citizens Advice Bureau immediately.
