Secured lender Firstplus, which has the television star Carol Vorderman advertising its loan products in glossy television advertisements, has been criticised over a loan offer that it has recently launched, which critics have described as a debt trap. The recently launched loan offers a discounted rate of interest for ninety days, enticing cash-strapped consumers to take out finance. However, after the ninety day period the interest rate on the loan nearly doubles, which means that consumers will be left having to pay huge sums of interest on their borrowing, having been drawn in by an initially enticing rate for just a short period of time.
The secured loan is only available to homeowners, as the finance is secured against the home. The initial interest rate that is offered to consumers starts at 4.9%. However, this is for ninety days only, and after this initial period the typical APR leaps to 8.5%. The minimum term of the personal loan is five years, and many consumers with less than perfect credit could end up paying a way higher rate than the typical 8.5% advertised.
The timing of the loan offer has also been slated, as it comes at a time when consumer debt levels are high, credit conditions are tight, and many lenders are reining in their lending. One official from the consumer campaign group Which? stated: ‘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.’
Officials from the lender, FirstPlus, responded by stating: ‘Consumers don’t have many options at the moment and we are responding to this.’