Expensive loans 'are not a solution' - 04/02/2008

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Poor credit consumers should not turn to expensive loans in the face of tighter borrowing restrictions, it has been advised.

Rachel Lacey, editor of Moneywise, claims there is a "real danger" that people will turn to loans and credit cards with high interest rates in the current financial climate.

There exists a widespread assumption that anyone who wants credit can obtain it, observes Ms Lacey, who forecasts a "shock" for customers in the next year as fewer requests for loans and credit cards are approved.

However, in light of restricted lending conditions, people may be more likely to enter their overdrafts and potentially be charged high levels of interest, she suggests.

"It's the cheaper methods of credit that are going to be harder to get your hands on. So I think the worry is that people will take on more expensive types of debt because they need the credit," the expert remarks.

Previous research from uSwitch.com found that 9.5 million people have maxed out one form of credit in the past six months, while 38 per cent of people are reported to have been rejected by a credit card provider.

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