This leaves many people with the choice of the doorstep lender, the exorbitant internet loan provider, or now, the TV advertised company that boasts of an APR of 2,356 per cent.
The problem is that the more the cost of borrowing rises the more desperate the borrower is. The websites that say you can have the money in your account in a matter of minutes know that if anyone is applying for such a loan they must be desperate and hence willing – but probably not able – to pay a premium for the pleasure of borrowing these funds.
The result is that a small loan becomes a big loan comprising never-ending payments.
Those who are desperate enough to turn to such companies risk becoming customers for life, endlessly repaying the same debt for ever.
There is another way, but it requires some advanced planning.
Credit unions, which are very popular elsewhere in Europe, are starting to take off in Scotland. They are a very cost-effective way of saving and borrowing for individuals which encourage positive financial habits to develop.
You usually need to be a member, and a saver, with a credit union for a fixed time before it will consider lending to you – usually about 12 months – and then the level of lending will depend on the amount you have saved over that period.
This is a useful means of ending the debt cycle that too many people get themselves into. Credit unions offer a real opportunity for individuals to learn the saving habit first and then be able to borrow at rates considerably below those of many lenders.
For those outside the mainstream credit system, credit unions allow an affordable and efficient means of managing money. They require forward thinking and planning, but ultimately can provide a better source of loans for many individuals. What is clear is that the easy lending of the pre-recession days is over and we are in a period when there will not be free access to cash for those deemed an unacceptable risk. Perhaps the first step, therefore, is to start a credit union account in anticipation of harder times around the corner.
Bryan Jackson is a corporate recovery partner with accountants and business advisers PKF