Tempting free loans target those most at risk

A free loan offer launched this week could prove disastrous for hard-up families, a debt charity has warned. "It's just a way to snare people into paying sky-high rates," said Una Farrell of the Consumer Credit Counselling Service.

The chance to borrow money at 0 per cent interest is being offered from next Wednesday by the payday loan company InstantLoansDirect.com. Its founder, Giles Coutts, said: "We're hoping we can help consumers at a time when they might be struggling financially."

But Ms Farrell scoffed at that claim. "Payday loans are to financial wellbeing what Christmas is to turkeys," she said.

The deal sounds tempting: anyone earning £750 a month or more can borrow up to £300 for up to eight days and pay no interest. The offer will be available for an eight-day period prior to the end of the next five months.

Those finding things getting a bit tight a few days before payday could think the cash is a godsend. With the Christmas and New Year period traditionally being the most expensive time of the year, it's obvious why the loan company has launched the deal now. It clearly hopes that many hard-up families are tempted.

But anyone who does take up the offer will find there's a potential sting in the tail. If you don't pay back the loan within eight days, the charges start, and they're not cheap. The loan firm says the charges are only 50p a day for every £100 borrowed. That sounds reasonable until you realise it works out at an APR of of 448.3 per cent.

To put it another way, if you borrow £300 and do not pay it back until a month later, you will be charged £33. For every further day you delay, another £1.50 will be added to the bill. Often payday loan firms then approach people who have failed to meet repayment deadlines and make new loan offers.

But what happens is that interest is rolled up and added to the loan, making people borrow more money. Further interest is then charged, often at a higher rate than the original deal. The net result is that the debt can quickly grow and get out of hand, leaving people owing much more than they borrowed in the first place.

"I am very concerned that many people are going to get a nasty shock and find themselves lumbered with huge debts after taking out what they thought was cheap credit," said Ms Farrell.

The loan firm's Mr Coutts denied that he was "out to make a quick buck". Instead, he claimed he hoped "to highlight the usefulness a payday loan can provide". Payday loans can be useful if you can definitely pay them back. They can also lead to debt disaster.

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Training/Learning and Development Coordinator -London

    £28000 - £32000 per annum: Ashdown Group: Training/Learning and Development Co...

    Training Programme Manager (Learning and Development)-London

    £28000 - £32000 per annum + benefits: Ashdown Group: Training Programme Manage...

    .NET Software Developer (.NET, C#, ASP.NET, front-end)

    £30000 - £45000 per annum: Harrington Starr: A Global Financial Service Organi...

    C# Web developer (C#,MVC,ASP.NET,SQL)

    £30000 - £40000 per annum + Bonus+Benefits+Package: Harrington Starr: C# Web d...

    Day In a Page

    A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

    A new Russian revolution

    Cracks start to appear in Putin’s Kremlin power bloc
    Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

    Apartheid’s sadistic killer that his country cannot forgive

    The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
    Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

    Standing my ground

    If sitting is bad for your health, what happens when you stay on your feet for a whole month?
    Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

    Greene prays for chance to rebuild after injury agony

    Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
    Israel-Gaza conflict: Secret report helps Israelis to hide facts

    Patrick Cockburn: Secret report helps Israel to hide facts

    The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
    The man who dared to go on holiday

    The man who dared to go on holiday

    New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
    Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

    Best comedians: How the professionals go about their funny business

    For all those wanting to know how stand-ups keep standing, here are some of the best moments
    The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

    The Guest List 2014

    Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
    Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

    Jokes on Hollywood

    With comedy film audiences shrinking, it’s time to move on
    It's the best of British art... but not all is on display

    It's the best of British art... but not all is on display

    Voted for by the British public, the artworks on Art Everywhere posters may be the only place where they can be seen
    Critic claims 'I was the inspiration for Blanche DuBois'

    Critic claims 'I was the inspiration for Blanche DuBois'

    Blanche Marvin reveals how Tennessee Williams used her name and an off-the-cuff remark to create an iconic character
    Sometimes it's hard to be a literary novelist

    Sometimes it's hard to be a literary novelist

    Websites offering your ebooks for nothing is only the latest disrespect the modern writer is subjected to, says DJ Taylor
    Edinburgh Fringe 2014: The comedy highlights, from Bridget Christie to Jack Dee

    Edinburgh Fringe 2014

    The comedy highlights, from Bridget Christie to Jack Dee
    Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

    Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

    The woman stepping down as chair of the Heritage Lottery Fund is worried