Do you really want a loan for christmas?

Think twice before you take out a loan to cover the costs of the festive season. Not only are you likely to be regretting it by the New Year, but if you choose the wrong loan company then you could really land yourself in trouble.

According to a report by the National Association of Citizens Advice Bureaux (NACAB), many people are becoming trapped into debt after taking out loans at extortionate rates - some interest rates were found to be as high as 1,834.3% APR!

For example, in a recent case, a man took out a secured loan for £5,800 in 1989. The total amount repayable with interest was £27,550 over 15 years. By March 2000 he had repaid £19,519. The lender advised him that he still owed a further £40,617 as extra charges had been added for some missed payments.

Once you take out one of these loans, you'll find it very difficult to escape. Firstly, you will have to risk large legal costs to take the loan company to court. Secondly, the law that decides whether a loan agreement is extortionate is currently very much on the side of the lenders.

As well as incredibly high interest rates, NACAB says that the other main problem areas are:

• Loans secured on borrower's homes (especially where it's to consolidate other debts)
• Loans to low earners
• Loans to people with impaired credit records
• Loans tied into the sale of cars, windows and kitchens

NACAB argues that the existing law dealing with extortionate credit is not working. It wants urgent changes made to strengthen controls on loan sharks and make it easier to take legal action against them.

Here are NACAB's tips to help you avoid being trapped into extortionate credit agreements:

• Shop around - take your time and don't be tempted to rush into signing an agreement
• Find out about alternative sources of borrowing (e.g. a credit union at work)
• Get independent advice
• Don't look only at the monthly payments required, take into account the additional interest payable
• Work out the total amount payable over the whole term of the loan - some loans may have a variable interest rate
• Make sure you know the difference between secured and unsecured loans - don't put your home at risk unnecessarily
• Be very careful about taking out a consolidating loan. An alternative might be to arrange to pay back your existing loans over a longer period, which could be cheaper and less risky

We specialise in helping people enter into debt consolidation plans. We will help you through all the stages of the process until you leave debt free.