Thousands of households have taken out loans with interest rates averaging 825 per cent during "the worst Christmas in a generation" for illegal doorstep lending, according to a new report.
The Real Cost of Christmas, commissioned by affordable housing provider Circle Anglia and written by the Financial Inclusion Centre, found that more than 100,000 of the UK's poorest families will spend 2010 crippled with a combined debt of around £82 million after borrowing money from loan sharks to pay for Christmas.
The value of the loans is an estimated £29 million, but average interest rates of 825 per cent will mean that people end up paying nearly three times the initial amount they borrowed.
The report says that on average people borrowed nearly £300 with an average repayment period of one year.
"We hope that by turning the spotlight on loan shark activity we can help more people to seek help and get sound financial advice," said Andy Doyland, chief executive of operations at Circle Anglia.
The report also found that illegal
loan shark activity is on the rise. Over the past three years the estimated use of loan sharks increased from 165,000 households a year to more than 200,000, a 22 per cent rise. Christmas time accounts for up to half of those loans.
In 2007 the government set up a national network of trading standards teams to tackle illegal money lending around the country. It says this network has since helped more than 10,000 victims and written off more than £30 million of illegal debt.
Circle Anglia said the credit crunch has forced more people to turn to such lenders after the availability of mainstream credit dried up.
It added that a typical low-income household could save £500 in debt repayments by going to a credit union or community finance organisation instead.
