Millions of low-income families are taking out loans at staggeringly high interest rates of almost 200%, according to a household debt report by Save the Children.
The report reveals as many as 2.3 million people are taking out loans from door-to-door credit salesman, with many using the cash to pay for basic essentials such as energy bills.
Jason Strelitz, Save the Children's UK poverty advisor, singled out Provident Personal Credit, which offers loans of up to £500 at 183.2% APR. Another is Brighthouse, which targets deprived areas of the UK and sells household goods on credit at extremely high rates.
High street banks and cheaper lenders rarely offer loans to people with a bad credit history, as they are considered too high risk. This leaves poor families with little choice other than to borrow from doorstep personal credit firms.
Strelitz said: "Doorstep lenders exploit poor families' inability to get credit from more mainstream lenders, and they cover their risk in lending to the less well off by charging punitive interest rates."
Around 165,000 of the UK's poorest families are forced to borrow from illegal lenders or loan sharks, according to the report. The cost of borrowing varies, but on average the initial loan is repaid almost three times over, with £285 paid back for every £100 borrowed.
As a member of the Campaign to End Child Poverty, Save the Children is calling for the government to invest £4bn to support the incomes of the UK's poorest families.
It is also wants the introduction of seasonal grants of £100 for every child living in poverty to be paid in summer and winter - the most financially demanding times of the year for poor families.
Strelitz said: "We have found that there are two times in the year when families are most likely to need extra cash - during the summer holidays when children are off school and need extra meals, and at Christmas when the heating has to be on all day."
Source
http://www.guardian.co.uk/money/2007/dec/11/
debt.consumeraffairs
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