Debts & Loans

Loans which charge interest rates of almost 10,000 per cent are being offered to customers in the run up to Christmas, research shows.

So-called pay day loans - which are aimed at helping borrowers with a short-term loan until their next pay day - are proving more tempting than ever to desperate consumers amid the credit crisis, experts warned.

But they said some consumers could be caught out and may end up in a "tangled web of debt" as a result of signing up to such a deal.

Loans with typical APRs - which is how much borrowers pay for the credit - of between 1,351.7 and 9,889.3 per cent, are available from online cash advances provider.

Quick Quid said the 10,000 per cent APR applies to loans that are outstanding for a year. The maximum loan is £750, but the average loan is "substantially less", it said.

Louise Bond, personal finance manager at uSwitch.com, said: "Both the APR and the amount of interest charged by pay day loan providers is extortionate however you cut it. "As with all loans, the problems occur when people cannot meet the monthly repayments.

Some companies will allow consumers to defer repayment for several months which can rack up a phenomenal amount of interest.

"These loans really are quick-fix solutions which only work for some people - for others they act as a fast track to a tangled web of debt."

She went on to suggest that the current economic climate was "perfect" for these organisations to appeal to cash strapped consumers who are "so desperate, they really don't care how much interest they have to pay".

She urged consumers to treat the loans with caution as they may seem like a solution when for many people, they will not make the bigger debt problems go away.

Andy Lapointe, director of compliance at Quick Quid, said: "Our product is cheaper than the alternate options available to our typical customer. Bank returned check fees, late credit card charges and lost time at work are all more expensive alternatives. Our customers are making a conscious, informed choice to the cheapest of their available options."