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Car buyers look for alternative ways to borrow

Advice groups want urgent action over payday loans taken out at exorbitant interest rates as people struggle to maintain car loans and other outgoings in the credit crunch.

Some companies have lent money at a rate close to almost 2,000% annually.

National Debtline, which advises people with financial problems, said more people were looking for alternative forms of borr-owing because of the credit crunch.

The Office of Fair Trading said the loans would be covered by its investigations into responsible lending. The loans typically mean a lender advances cash, usually for a month, against a post-dated cheque.

Re-mortgaging is used to buy cars, according to Parker’s Car Guides, which said people were throwing away money.

They could be left with a serious financial headache if the car plummeted in value while their loan repayments increased.

According to the Bank of England, home-owners have borrowed about £311 billion since 2000 for purchases other than their homes.

Parker’s said a car priced at £14,000 financed by a 7.2% mortgage could amass a total cost of £30,000. Bought with a standard 7.7% APR car loan, the full cost would be under £16,000.

Car supermarket Motorpoint said loans were needed for one in three sales. Those through Boomerang, its PCP programme, were 6% higher than in the first half of 2007.

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