HARD-UP Brits are being targeted with misleading advertisements for loans at exorbitant interest rates on social media.
An investigation by The Sun revealed sponsored posts on Facebook promoting loans with eye-watering rates of up to 1,721%.
Several promised money within minutes or the same day and some didn’t post the potentially high rates until they read the fine print.
The ads appeared on our Facebook feed after using search terms on the popular platform like Universal Credit, debt help and borrow money.
Ads should include representative APRs and specific risk warnings about late payments and a link to the government’s Moneyhelper website.
And credit brokers must declare that they are brokers and not lenders, among other rules for financial companies.
An advert for loan broker Little Loans promised ‘money can be sent in 15 minutes’ and a loan of between £100 and £10,000 with a representative APR of 49.9%.
After clicking, small print on the page reveals that the rates range between 11.8% APR and a maximum of 1,721%.
It says it compares 30 lenders to give you “the lowest APR possible” and will be based on your personal circumstances.
APR stands for Annual Percentage Rate and is used to calculate the amount of interest you will pay in addition to paying back the original amount you borrowed.
Borrowing £100 for 12 months with the highest interest rate would mean paying back £143.42 per month, costing you £1,721.04 in total.
That’s interest of £1,621.04 – 16 times the amount borrowed.
Another advertisement for Fund Ourselves promised to “get money into your account today”, but did not specify how much you could borrow or what interest rate you would pay.
After clicking on new customers, they are told they can apply for an “instant affordable short-term loan” of up to £800 for new customers or £1,500 if you have already borrowed.
But the representative APR is 505.7%.
The representative APR means that at least 51% of clients obtain this advertised rate if they are accepted for a loan.
Borrowing just £100 for 12 months would cost £42.77 in monthly repayments and you would repay £513.25 in total.
You would pay interest alone of £413.25, more than four times the original loan amount.
Another advertisement for Drafty offers loans of up to £3,000 with a representative APR of 89.7%.
Borrowing £100 for 12 months would cost £12.91 in monthly repayments, making £154.93 in total and interest alone would cost £154.93.
Dangers of high cost credit
High cost credit is where rates and other costs are much higher than standard borrowing arrangements.
In recent years, the city’s watchdog has cracked down on high-cost credit, including home loans, rent-to-own, overdrafts and payday loans.
It follows the Sun’s Stop The Credit Rip-Off campaign to help the millions of families who fall prey to loan sharks and legal loan sharks.
A report by the Financial Conduct Authority (FCA) in 2019 found that almost 3 million people use high cost credit.
Many are on low incomes and have low credit scores and are excluded from traditional loans.
This means those who can least afford it pay more to borrow and that’s often for emergencies and unforeseen shortfalls.
It comes as millions of households face soaring costs of living, driven by higher energy bills and more expensive food on supermarket shelves.
And there are fears that many people struggling to get by will have to borrow money to cover day-to-day expenses.
Credit card borrowing hit £1.5billion in February, the biggest increase since Bank of England records began in 1993.
And borrowing is set to hit a five-year high this year, according to EY Item Club, as millions of families struggle to make ends meet.
Sue Anderson, from debt charity Stepchange, said that at a time when so many people were struggling, it was hard to justify this type of marketing “which is clearly aimed at people who may be in financial difficulty”.
She said: “Promoting quick and easy access to high-cost credit trivializes it and risks causing hasty decision-making that compounds financial hardship.
“Clients need time to consider borrowing, not a design that rushes them into a decision that could put them further into debt.
“Those with low financial resilience are most likely to use high cost credit products, not by choice but due to a complete lack of borrowing alternatives.
“The loans in these ads could be regulated, but the exorbitant APRs illustrate a frighteningly high risk of harm.
“Repeated use of these types of products to make ends meet – often the reason people turn to this type of borrowing – can lock people into a spiral that is very hard to get out of, especially more if they already have low incomes.
“Unfortunately, with the cost of living crisis set to get even worse in the coming months, there is every chance that we will see an increase in the number of people forced to resort to this type of loan just to make it out.
James Daley, the founder of consumer website Fairer Finance, said it was “shocking” that lenders were targeting those on benefits.
He said: “These are vulnerable customers who are highly unlikely to be suitable for new credit offers – and it’s hard to see how this type of targeting would comply with FCA rules.
“Credit isn’t always bad – but it’s unlikely to be the answer for people who are already struggling and companies need to be very careful about how they advertise.
“Lenders often go overboard by focusing on how quickly money will get into your account or focusing on how easily it can be applied for.
“Some of the interest rates on offer are eye-watering and do not appear to be in line with the ceiling imposed by regulators several years ago.
“It is important that the FCA look into this urgently.”
After highlighting the ads, Facebook said it removed the ads for violating its guidelines.
In its advertising policies, the social network specifies: “Ads cannot promote payday loans, paycheck advances, surety bonds or any short-term loan intended to cover someone’s expenses. until his next repair. Short term loan refers to a 90 day loan. or less.”
The FCA has since written to 28,000 lenders and brokers warning them not to use misleading terms in their advertising.
Sheldon Mills, executive director of consumer and competition at the watchdog, said:
“The rising cost of living means that many more consumers could find themselves in difficulty.
“When people are looking for a loan, it is essential that they have a full idea of what it could mean and the risks involved, especially if they are already in a difficult financial situation.
“There is no excuse for advertisements to make borrowing easier or less risky than it is and they should seek to help customers through the cost of living crisis – not ‘exploit in their marketing.’
A spokesperson for Digitonomy, the company behind Little Loans, said: “If you are using Facebook’s search function to ‘borrow money’ then more than likely Facebook will choose to show ads relevant to your search “borrow money”. including money comparison sites such as small loans which earned a Platinum 5 star rating from customer feedback site Feefo in 2022″
Fund Ourselves and Drafty did not respond to requests for comment.
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