Strapped UK consumers turn to loan sharks
Tight credit conditions force some to alternative lending
By UK CreditCards.com
UK consumers who are being turned down by high street lenders in the recession are using other sources of credit, it has been revealed.
Many customers looking for a way of servicing existing loan and credit card debts are turning to unregulated "loan sharks" who offer high-interest short-term credit, the Wall Street Journal reported.
Case studies from borrowers show that they are sometimes charged APRs of over 1,000%, and can be subjected to threats of violence from the lender if they cannot make repayments. The popularity of sharks was found to have increased as a result of the stringent criteria currently being imposed on customers by high street banks and regulated subprime credit providers.
In turn, this has been caused by financial firms looking to protect their own balance sheets in the global financial crisis and economic downturn by turning away the "risky" customers they previously welcomed.
These international trends have had a particularly marked effect on the UK, where residents have some of the highest debt levels in the world. Data from Credit Action shows that the UK's total personal debt stands at almost £1.5tr. This equates to roughly £60,000 owed per household, including mortgage debts.
OECD data also suggests that the typical Briton has a debt-to-income ratio of 180%.
Speaking to the newspaper, Alan Evans at the South West Illegal Lending Team, a government-backed loan shark specialist, added: "We are seeing a massive increase in people coming forward" with problems.
Published: 4 September 2009
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