There are many different types of loan and credit agreement across the UK, with different costs and charges, depending on the type of loan and the status of the borrower. However, it is often the poorer families in the UK who often end up paying a much higher price for their loans and credit than better off individuals.

A new report from the charity Barnado’s has found that many poorer families across the country end up spending around 30 per cent of their weekly income on repaying their personal loans and other debts.

The charity has described the loan industry as a whole as “morally bankrupt” and has accused lenders of exploiting vulnerable borrowers with expensive forms of loans and other credit, which they are realistically unable to afford.

Due to the fact that many lower income families are unable to access more traditional forms of lending such as bank loans, or other cheap loan options, many are forced to take out expensive pay day loans, or use rent to own schemes from companies such as BrightHouse in order to purchase the things they require.

The charity found that someone could buy a fridge freezer on a rent to own scheme for which they would end up paying £1,074 over a three year loan term. However, the same item is on sale on the high street for just £430.

Barnado’s has called on the government to do more to help low income families gain access to better cheap loan products, so that they may avoid pay day loans and other expensive credit and force rent to own schemes to show a clearer overall price which someone would pay for goods.

Anne Marie Carrie of Barnado’s said “The most vulnerable families in society are being lured into an unaffordable debt trap by a morally bankrupt lending industry.”

There has been a huge increase in peer to peer loan arrangements through organisations such as Zopa over the course of recent years, largely due to the fact that many individuals are able to get a cheap loan through such an arrangement, whilst investors can get a better return on their savings than they would in a traditional bank.

Peer to peer lending has become more popular, particularly since banks and other traditional loan companies have become extremely reluctant to offer personal loans to anyone and have increased interest rates on the majority of unsecured loan products.

However, the Financial Services Compensation Scheme (FSCS) has issued a warning to individuals who invest their savings into peer to peer loan arrangements, that their investment is not protected under the FSCS rules, as other forms of investment and savings accounts would be.

Over the course of the past eighteen months alone, savers have switched a total of £192 million from traditional deposit and savings accounts, into “money exchange” schemes, where their funds are then used to offer other individuals cheap loans.

The FSCS has raised the issue following the collapse of one peer to peer loan company, Quackle, leaving investors to chase loan customers for their loan repayments directly, rather than through the loan company.

As this type of lending is not protected and has no compensation option from the FSCS, many investors face the possibility of losing their funds if they are unable to obtain the loan repayments from the borrower.

Mark Neale of the FSCS said “It is understandable that consumers want the best rate of interest for their savings in the current climate and peer to peer lending may be the right choice for some people who are looking for a return on their savings, or want a competitive loan rate. It is important to remember that the FSCS does not protect money invested through peer to peer loan companies.”

Now that Christmas has passed once again and we enter the slight lull between Christmas and New Year, many individuals across the UK will be waking up bleary eyed and wondering what all the fuss and huge amount of build up was all about.

The next thought which is likely to hit many people is just how much they actually spent over the course of the festive season, on presents and celebrations and for some, this may not become fully apparent until they receive their credit card bill, or check their bank statement for January.

Although many individuals have made huge cut backs on their Christmas spending this year, others will still have depended on credit, such as overdrafts, credit cards and personal loans to cover the cost of the festive season, without taking into account the consequences of the additional loan repayments in January.

Worst of all, a growing number of borrowers have taken out expensive pay day loans, which will start charging extremely high levels of loan interest if they are not paid off within the first month of taking the loan out.

For many people who find themselves in the position where they are unable to manage all their loan and other debt repayments in the New Year, a debt consolidation loan may be a suitable solution to the problem.

A debt consolidation loan pools a person’s individual smaller loans and debts into one single larger loan with just one monthly repayment amount. This is often easier for someone to manage instead of many smaller repayments.

Although the monthly loan repayments on a debt consolidation loan are usually significantly cheaper than the previous debts, a borrower should ensure that they are only using the loan to repay more expensive debts and that the term of the new loan is not excessive compared with the original debts, as this could work out more expensive over the term of the loan.

There has been a lot of publicity in recent months about the potential dangers of taking out short term loans, known as pay day loans, which often charge extremely high levels of interest on small unsecured loans which are intended for terms of less than a month to see someone through to their next pay day.

But consumers have also been warned against taking out short term loans which claim not to be the same as a Pay Day loans, yet still seem to have many similarities to pay day loan practices, even if their interest rates are slightly cheaper.

Pay day loans are intended for terms of less than a month and can be useful if they are fully paid off within this time. However, many borrowers do not manage to do this and can easily end up paying interest rates of over 4000 per cent APR on their loan.

Other loan companies are now offering sort term unsecured loans for terms of a couple of months, which they claim are not pay day loans. Whilst these may work out cheaper than a pay day loan, APR is still charged at a rate of 2,866 per cent, which is not exactly a cheap loan option!

The Money Shop has also launched a pre paid credit card with a monthly fee of just £4.95. However, this card also offers a “debit protect” loan option which in effect turns the pre paid card into a more traditional credit card, but with an APR of around 455 per cent.

When someone is desperate to get some money quickly for things like car repairs, or particularly at this time of year, for their Christmas shopping, very often they fail to shop around for a suitably cheap loan, taking the first option which is presented to them.

Consumers should be extremely careful about taking any form of short term loan or credit and ensuring they are able to repay this debt within the time scale.

Over the course of the past twelve months or so, the number of borrowers falling behind on their home owner loan repayments and falling into loan arrears and the possibility of repossession has been steadily reducing, largely due to help from government schemes and a more sympathetic approach towards helping people with their loans from lenders.

But the latest figures from the Council of Mortgage Lenders (CML), the Financial Services Authority (FSA) and HML Business Intelligence are all predicting a change of fortune for many people who are struggling with their home owner loans next year.

The reports forecast that the number of loan repossessions in the UK is likely to see a dramatic increase of around 7 per cent over the course of next year, before the figures start to fall again in 2013.

High levels of personal debt on things like unsecured loans and credit cards is likely to add to financial problems for many households who are already struggling to cover their home owner loan repayments every month.

Rising unemployment and a stagnating UK economy are likely to make the situation even worse than it could have been for many, despite the fact that interest rates on loans are probably going to remain at their currently low level of 0.5 per cent for the whole of next year.

The latest CML figures show that there have been around 27,500 repossessions so far this year and this is expected to reach 37,000 by the end of the year. However, with the current level of outstanding loan arrears on many home owner loans and mortgages, this figure is predicted to rise to somewhere in the region of a total of 45,000 repossession cases over the course of next year.