The worsening lending sutuation created by the credit crunch has lead many banks and financial situations to tighten their lending criteria, leaving many people vulnerable to doorstep lenders and loan sharks. These lenders, however, may charge significantly higher rates of interest than their high street counterparts and use bullying tactics if repayment isn't made.
Debt campaigners have seen thousands of clients forced to borrow at extortionate interest rates because they have had their credit cards cut off or have been refused loans as the country's biggest banks react to the global credit crunch.
Banks have scrapped 125 per cent mortgages, increased the minimum deposit needed for first-time mortgages and reduced credit card limits as the banks' own borrowing costs rocketed in response to a worldwide collapse in interbank lending.
Egg, the online lender, recently cancelled the credit cards of more than 160,000 customers. Many lenders, including Nationwide, Britain's biggest building society, are charging higher rates for borrowers who do not have a 25 per cent deposit.
Provident Financial, the country's most prominent doorstep lender, has predicted a booming 2008. The lender said this month that the number of people who fell into the non-standard category of borrowers had grown to about ten million.
The Financial Services Authority estimates that up to seven million people have difficulty gaining mainstream credit, and the Citizens Advice Bureau recently reported that mortgage shortfall problems had shot up by 35 per cent in the first two months of 2008, compared with the same period last year.
Doorstep lending, which usually involves small loans on interest rates of 100 per cent or more, with payments collected each week by a local agent, is legitimate, but debt charities fear that unauthorised lenders are also capitalising on the increased number of people who have found their usual lines of credit diminished or cut off.
Faisel Rahman, managing director of Fair Finance, a non-profit sub-prime lender based in East London, said: It's a race. We can forge a new way of lending but we can assume that our competition will also move in.
Keith Tondeur, president of Credit Action, a charity that offers budgeting education, said that many of the people who were turning to sub-prime lenders had previously been good customers of the high street banks.
He said: "People who've been able to borrow at will are now unable to do so,this comes at the same time as rising food and fuel prices and declining asset values, it's not painting a pretty picture.
There's a great core of people who've been borrowing happily for 20 years and all of a sudden that's no longer available to them.
Loan sharks are a specific type of unregulated door-stop lender that often use unfair practices such as high final payments or sudden demands for cash because they can do so. As they are unregulated by the FSA, it opens access to the criminal underworld.
Organised crime is attracted to such deals because loaning money is not illegal, and complaints are impossible to make. Often the lender will be based overseas for tax or logistical purposes, hiring third parties to ensure payments are made.
One man, who fell foul of such crooks, and would not disclose his name for fear of reprisals, repaid more than 15,000 over five years after borrowing 3,000 from a loan shark in Britain.
Unable to get a standard bank loan, the borrower from Colombia borrowed the cash in 1999 to set up a new life in the UK, but, with repayments of 450 a month, was unable to pay off the deal.
I was paying 15 per cent on my loan, but if I couldn't pay the full 450 and gave him only 300 one month, the other 150 went on to my loan and I paid 15 per cent on that as well.
When his lender, also from Colombia, threatened the life of his family in their home country unless he kept up the huge repayments, the borrower turned to Fair Finance to bail him out.
He said that he cried with joy when the non-profit sub-prime lender offered him sufficient credit to pay off the loan shark. It didn't just save him from bankruptcy, it saved his life too.
Debt campaigners have seen thousands of clients forced to borrow at extortionate interest rates because they have had their credit cards cut off or have been refused loans as the country's biggest banks react to the global credit crunch.
Banks have scrapped 125 per cent mortgages, increased the minimum deposit needed for first-time mortgages and reduced credit card limits as the banks' own borrowing costs rocketed in response to a worldwide collapse in interbank lending.
Egg, the online lender, recently cancelled the credit cards of more than 160,000 customers. Many lenders, including Nationwide, Britain's biggest building society, are charging higher rates for borrowers who do not have a 25 per cent deposit.
Provident Financial, the country's most prominent doorstep lender, has predicted a booming 2008. The lender said this month that the number of people who fell into the non-standard category of borrowers had grown to about ten million.
The Financial Services Authority estimates that up to seven million people have difficulty gaining mainstream credit, and the Citizens Advice Bureau recently reported that mortgage shortfall problems had shot up by 35 per cent in the first two months of 2008, compared with the same period last year.
Doorstep lending, which usually involves small loans on interest rates of 100 per cent or more, with payments collected each week by a local agent, is legitimate, but debt charities fear that unauthorised lenders are also capitalising on the increased number of people who have found their usual lines of credit diminished or cut off.
Faisel Rahman, managing director of Fair Finance, a non-profit sub-prime lender based in East London, said: It's a race. We can forge a new way of lending but we can assume that our competition will also move in.
Keith Tondeur, president of Credit Action, a charity that offers budgeting education, said that many of the people who were turning to sub-prime lenders had previously been good customers of the high street banks.
He said: "People who've been able to borrow at will are now unable to do so,this comes at the same time as rising food and fuel prices and declining asset values, it's not painting a pretty picture.
There's a great core of people who've been borrowing happily for 20 years and all of a sudden that's no longer available to them.
Loan sharks are a specific type of unregulated door-stop lender that often use unfair practices such as high final payments or sudden demands for cash because they can do so. As they are unregulated by the FSA, it opens access to the criminal underworld.
Organised crime is attracted to such deals because loaning money is not illegal, and complaints are impossible to make. Often the lender will be based overseas for tax or logistical purposes, hiring third parties to ensure payments are made.
One man, who fell foul of such crooks, and would not disclose his name for fear of reprisals, repaid more than 15,000 over five years after borrowing 3,000 from a loan shark in Britain.
Unable to get a standard bank loan, the borrower from Colombia borrowed the cash in 1999 to set up a new life in the UK, but, with repayments of 450 a month, was unable to pay off the deal.
I was paying 15 per cent on my loan, but if I couldn't pay the full 450 and gave him only 300 one month, the other 150 went on to my loan and I paid 15 per cent on that as well.
When his lender, also from Colombia, threatened the life of his family in their home country unless he kept up the huge repayments, the borrower turned to Fair Finance to bail him out.
He said that he cried with joy when the non-profit sub-prime lender offered him sufficient credit to pay off the loan shark. It didn't just save him from bankruptcy, it saved his life too.
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