press release

Consumers cut off from credit by wary lenders in the aftermath of the credit crunch could be forced to live in a cash economy that is seeing a revival of money lenders and pawnbrokers, says data comparison site Moneynet.co.uk.

And with the lure of online gambling and bingo sites as the answer to all their woes, there’s a danger that people may be tempted to gamble their way out of debt and turn a difficult situation into a desperate one.

But it’s not just the previously borderline creditworthy who are facing a radically different financial landscape – a new generation of financially disadvantaged consumers is predicted to emerge as the effect of the credit famine leaves a stain on their records, says Moneynet.co.uk ’s Richard Brown.

“Many borrowers with an adverse credit history, who last year would have found it relatively straightforward to access mortgages, loans and credit cards, are now finding themselves pushed out altogether, whilst a new generation of bewildered borrowers takes their place in the adverse market,” he says.

“But with the rise in inflation threatening future interest rate rises and the cost of everyday necessities still climbing, deciding to live according to their means without borrowing is simply not an option.

“A great many ordinary consumers are going to have to find some way of borrowing in order to survive, and that will mean making decisions that are likely to lead to even more debt and hardship.”

Before the boom in easy credit, there were always ways of getting hold of money for those with no chance of being accepted by a bank, but the price was high with doorstep money lenders able to extract the maximum in interest from their hapless customers.

Those dark days look set to return with pawnbrokers reporting a 30% increase in business in the UK over the past six months* as people are forced to part with valued possessions in order to pay the bills.

Internet pay day loan companies and high street cheque cashing shops are also seeing booming business from consumers looking for an immediate solution to a need for funds, but the cost of this short term fix is crippling.

A loan from one of the easily accessed web companies comes with a finance charge of £25 per £100 borrowed, equating to a staggering 1,355 APR** . Hardly the financial freedom it claims to offer.

Log book loans are another easy option for those desperate enough to put their car up as collateral, but with the total repayable on a loan of £1,500 amounting to £4,180, the folly of this move is blindingly obvious.

“Right now, the outlook for consumers is very gloomy indeed and it’s tempting to grab at anything that provides immediate relief,” says Brown.

“But the only real remedy is a longer term detox programme that brings stability and ultimately a sustainable way of moving forward. This can only be done by accepting you have a problem and seeking expert advice on the options open to you.

“There is always help available and I would advise anyone considering borrowing from any source other than a reputable lender to stop and think twice.”

* National Association of Pawnbrokers, June 2008
** Based on a 30 day loan from Paydayuk.co.uk