High Interest Christmas Loans

Do Christmas Loans Mean a Visit to Debt Advice Agency in New Year?

Oct 24, 2009

With the festive season approaching the Internet is already awash with adverts offering Christmas loans but consumers should be aware of the APR before applying.

The most vulnerable members of society, particularly those with children, are under increased financial pressure at Christmas. Many within this category, which in 2009 is an increasing number because of the knock on effect of the Credit Crunch, will opt for a high interest loan to finance their spending.

Sub Prime Loans

Some will do so because sub-prime loans are the only source of borrowing open to them and some will do so because they are unaware of the importance of the APR in determining the best value loan.

For example somebody with an excellent credit score would expect to pay around a typical 8% APR from a high street lender. In stark contrast one of the UKs best-known doorstep lenders offers a Christmas loan of £300 at a staggering APR of 272.2%. Repaid in 52 weekly installments of £10.50, this adds up to a total of £546. (Example from Provident Personal Credit)

The above example is by no means the highest APR on offer. However the advice from all reputable financial advisers is either not to borrow for Christmas or do the research and get the best deal available.

All UK Loans Must Advertise an APR

By law, UK lenders have to tell their customers the APR, the annual interest rate, which must be paid on a loan. This covers all loans including credit card loans, personal loans and secured loans. Sadly many people who make the decision to apply for a Christmas loan will become customers of one of the debt advice agencies, which historically see a huge increase in business in the New Year.

Chris Pond, Head of Financial Capability at the Financial Services Authority (FSA) says that, “Debt advice agencies have been swamped with a tidal wave of cases, in relation to debt.”

Reforming Financial Markets

The UK government is well aware of the inequalities in the system and have been consulting on Reforming Financial Markets. The UK Financial Inclusion Centre (FIC) in response to the consultation say government priorities should be to protect the most vulnerable consumers in society from the effects of the ongoing financial crisis.

Although the FIC welcomes the Reforming Financial Markets paper they say that, “We do not believe that they go far enough to cope with the sheer scale of consumer detriment caused by the financial crisis, nor protect the most vulnerable households in the UK who fall outside the mainstream of financial services.”

However until there is more protection in law for consumers it’s worth considering the words of financial journalist Martin Lewis who offers some practical advice on Christmas spending. He says, “If you don’t prepare in advance you can end up with serious debts...A common mistake is to decide what kind of Christmas you want first, then trying to get it cheapest. Yet instead of asking ‘how can I get it cheapest? People should ask, what can I afford?' "

Sources:

The copyright of the article High Interest Christmas Loans in Consumer Education is owned by Neil Gunn. Permission to republish High Interest Christmas Loans in print or online must be granted by the author in writing.