The survey also found that using this method to pay off debt was rarely the right course of action. Which? targeted credit brokers that advertised in national tabloid newspapers.
Two researchers contacted 22 credit brokers through the small ads. One researcher said he owned a flat worth about pounds 65,000. He said his outgoings matched his monthly salary of pounds 700 and he had a debt on his credit card of pounds 3,000. He asked the credit brokers for a pounds 5,000 loan to clear his debt.
He was offered a loan by a third of brokers contacted - provided it was secured against the pounds 15,000 worth of equity in the property. The rate of interest offered was between 15 and 18 per cent, slightly higher than the rates quoted by high street banks.
The second researcher said she was a tenant who wanted a loan to pay off her unauthorised overdraft of pounds 2,500. Her monthly income of pounds 500 did not cover her rent, overdraft charges and bills. Four of the companies were willing to lend her between pounds 2,100 and pounds 2,500 over three years at an APR of 43.9 per cent - more than three times higher than the rates offered on unsecured loans by other high street lenders.
The survey found that brokers, who are only arranging the loans on behalf of other lenders, are paid up to 15 per cent commission. The higher the commission, the higher the interest rate will be on the loan.
Which? found that brokers were also paid more commission if they arranged a loan for someone who was in adverse circumstances - ie, if they were in mortgage arrears or if they had a county court judgment against them.