Action for Children warned today that low-income families are facing a ‘debt disaster’ this Christmas.
A survey commissioned by the charity and Barclays Bank found that nearly half of people on low incomes were at risk of borrowing more than they could afford to pay back because they did not know what APR – annual percentage rate – meant. The rate is a crucial factor in determining how much a loan will cost.
It was also found that many people chose the most expensive ways in which to borrow money. A quarter said they used catalogue credit and one in seven said they were planning to use doorstop lenders.
However, just one in 11 said they were planning to borrow from their local credit union and only one in 16 said they would apply for a loan from the Department of Work and Pensions – two of the cheapest sources for loans. A quarter of those surveyed said they would still be paying off their debts in a year’s time.
The charity has launched a guidance booklet to help families with their finances. Action for Children chief executive Clare Tickell said: “It’s vital that those on the lowest incomes have all the facts at their fingertips before committing to what otherwise could be a very costly decision.”
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