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Beware the 22,600% loans

Hugely expensive credit deals are being pushed by companies capitalising on the need of cash-strapped households to find money quickly in the run-up to Christmas.

Provident Financial, the credit-pusher giant that specialises in lending to those on low incomes and those without bank accounts, has blitzed tens of thousands of homes with junk mail loan offers.

The typical rate of interest charged is 177%, though for some borrowers it could be more than 300%.

‘If you’ve realised you need extra cash for Christmas, don’t worry,’ gushes Provident’s offer. ‘Don’t miss out on the Christmas you want!’ The mailings contain its much-loved gimmick of a fake cheque made out to the addressee, with the words: ‘Turn this into CASH – NOW!’

Other firms are offering even dearer credit, with the APR running into thousands or, unbelievably, tens of thousands.

Paydayuk.co.uk, for instance, charges borrowers £50 for a loan of £200, which for short-term borrowing is an APR of more than 22,600%.

Another deal is from uncle-buck.co.uk, which charges borrowers £75 for a one month loan of £250 – making a total repayable of £325. This works out at an APR of 2,339.3%.

Rival lender 4cashnow.co.uk offers similar deals. Here, borrowers write cheques to 4cashnow.co.uk, which advances the money immediately, but only banks the cheques on the borrowers’ next payday. This can be expensive. Borrowing £170 for one month, for instance, costs £30, which gives an APR of 578%.

Several other online companies, such as yesloansuk.com and payday-express.co.uk, offer similar deals. They target those who cannot borrow elsewhere.

Mainstream credit-pushers, including Tesco, are also greedily vying for seasonal business. Many have cynically bought advertising rights to words such as ‘Christmas’ to ensure that when borrowers-search the web for loans, their deals come up first.

Typing the words ‘Christmas credit’ into Google, for instance, brings Tesco’s Christmas loan offer to the top of the list. Tesco promises: ‘Pay nothing for two months and enjoy the Christmas you’ve dreamed of!’ But borrowers do have alternatives to companies such as Tesco that push credit for profit.

Credit unions, which are run on behalf of their members, offer loans at a rate that by law cannot exceed 2% a month of the outstanding balance, but many are far cheaper than that.

Though unions traditionally required members to save with them first before they could borrow, more than 100 offer instant credit to new members.

‘They particularly suit borrowers needing smaller sums over shorter terms’, says Mark Lyonette, chief executive of the Association of British Credit Unions.

Borrowers must qualify for credit union membership, which is usually based on a member’s occupation or where they live.

Most people are eligible to join a union, Lyonette claims. Provident Financial spokesman David Stevenson says: ‘We are not lending to the poorest of the poor. Our agents are paid on what they collect, not what they lend, so they are not incentivised like some other lenders.’

Tesco insists it has not paid for the search word ‘Christmas’ to flag up its deals, but says: ‘We use easily recognisable terms such as cash and credit to speed up searches.’

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