How to Avoid Loan Sharks
Doorstep Loans - High APR Lending for the Financially Vulnerable
Dec 16, 2008
A loan shark preys on the financially vulnerable. Those who have been excluded by the financial system often turn to loan sharks or doorstep loan companies for money, rarely considering the high APR they will be paying. Usury rate lending has made an unwelcome return in light of the current credit crunch.
Why Did Loan Sharks Arise?
High APR, loan shark lenders came about as a direct result of financial exclusion. County Court Judgements (CCJs), statutory defaults and personal bankruptcy made it virtually impossible for some people to get credit.
Who Turns to Loan Sharks?
Loan shark borrowers come from all walks of life, but common sources of business include: illegal immigrants, compulsive gamblers, single parents, unemployed and those with bad credit. People with damaged credit and those who are excluded from normal sources of borrowing are amongst the most common targets.
The New Threat - Doorstep Loans
Doorstep lenders represent the new age of loan shark, charging 60% APR on loans for as little as £200. Although this is a high APR rate, some one-man operations charge vastly more. Provident Financial in Bradford, Cattles of Hull and S&U control over 50% of the market.
Peter Freeman, chairman of the Competition Commission said: "Customers value home credit because it suits their needs very well but the fact is that they are paying too much for it, because of the lack of competitive pressure in the market."
Should Doorstep Loans be Banned?
Whilst many consumer debt groups don't have a very favourable opinion of doorstep lenders, they are not currently in favour of a ban. The fear is that an outright ban would drive the industry underground which would only serve to exacerbate the problem.
Avoid Signing up for a Doorstep Loan
- Don't buy what isn't needed. If something isn't affordable, go without it;
- Always budget. Produce a breakdown of income and expenditure so it is easy to determine what is available for social spending;
- Save for the unexpected. Saving 5% of the social spending budget each month helps prevent the need for high APR borrowing in the future;
- Consumer Credit Act 1974. Only borrow when an agreement is regulated by legislation.
- Free debt advice. There are a number of free debt advisory services that will help a borrower deal with unmanageable financial problems.
- Debt Solutions. A variety of debt solutions can help a borrower tackle money issues.
Usury interest lending is a problem that afflicts the most vulnerable social groups. If financial difficulties do become a problem it is best to seek assistance from a qualified debt counsellor as they are best placed to help someone become debt free. Avoid doorstep loans and choose a debt solution.
Those that found this article of assistance may also be interested in reading about taking sensible steps to get out of debt.
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