The loan advertisement that is headed by television star Carol Vorderman has been criticised for being a debt trap. The criticism related to the launch of a new loan product from First Plus, the company behind the advertisements, which promises a discounted interest rate on the loan for the first ninety days. However, after the initial introductory period the loan rate nearly doubles for the remainder of the loan term.
The secured loan, which is available to homeowners, offers an initial rate starting at just 4.9% for the first ninety days. However, after this period the interest rate rockets to a typical rate of 8.5%. The minimum loan term is five years, and those with a lower credit rating can expect to pay far more than the typical 8.5%. With many consumers being turned away by high street banks, who are cutting back on their lending, critics are worried that this seemingly tempting deal could attract hard up borrowers and then leave them caught in a debt trap.
One official said: ‘The initial rate is low enough to attract borrowers desperate for credit and who may be struggling to find it elsewhere. Yet 90 days offers negligible benefits and many people may not understand fully that the rate will soar in a very short time. This is a debt trap.’
However, an official from First Plus stated: ‘Consumers don’t have many options at the moment and we are responding to this.’
The timing of the launch of this loan product has been described as cynical given that the global credit crunch has resulted in many lenders reining in on their lending, and many consumers unable to meet their financial obligations due to the current financial climate.
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