Nearly 100,000 UK households turned to loan sharks to cover the cost of Christmas 2009, borrowing an estimated £29million, but the interest will mean borrowers will have to pay back £82million.
According to The Real Cost of Christmas report, commissioned by affordable housing provider Anglia, Christmas has left many Brits with more debt than they bargained for, as interest rates on borrowings from loan sharks are an average 825 per cent, but can reach as much as 1,500 per cent.
Someone taking out a £288 loan from an illegal money lender at the average rate will end up repaying £820 – nearly three times the figure they initially borrowed – and it will take them more than a year to clear the debt, so most will still be paying for last Christmas by the time Christmas 2010 rolls around.
If they had compared loans to find the best one instead of turning to a loan shark, a typical borrower could have saved up to £500 in interest payments on the average loan of £288, the research found.
The report reveals that Christmas 2009 was the worst year in a generation for this type of borrowing, with instances of loan shark lending increasing by 22 per cent in the last three years.
Anglia fears that this will continue to climb as the recession goes on, so it has launched an awareness campaign in areas where residents are targeted by door step loan sharks to educate them about the other options available if they find themselves struggling financially.
Andy Doylend, executive director of operations at Circle Anglia, said the statistics revealing the extent of illegal lending in the UK are "very concerning."
"We hope that by turning the spotlight on loan shark activity we can help more people to seek help and get sound financial advice," he said, because the amount that loan shark customers could have saved on interest payments to pay for last Christmas could have paid for Christmas 2010 as well.
"The challenge in 2010, for all of us in the housing sector, is to make sure that we reach out to our residents to make them aware of the availability and accessibility of affordable finance and to help them manage their finances better," Mr Doylend added.
© Fair Investment Company Ltd