A LOAN with a staggering but perfectly legal interest rate of more than 2.6 million APR was offered to a desperate York woman struggling to stay afloat, The Press can reveal.

Today, York Credit Union told how it had helped the woman out of her incredible debt crisis after discovering that not only had she agreed to that internet lender's rate but another loan firm had signed her up for more than 16,000 per cent APR.

It meant she was paying out over £800 a month on the two loans - of which nearly £700 was purely going on interest.

Today, Mike Horncastle, manager of the credit union, issued a powerful warning as tens of thousands of shoppers prepared to make their final festive purchases.

He said: "Because it is Christmas it is easy to lose the plot, but these kind of deals, be they from door-step lenders or internet companies, must be avoided plain and simple if you can no matter what the pressure."

Christmas debt warnings to shoppers as woman pays 2.5m per cent interest on loan

A desperate York woman signed up to a loan - offered perfectly legally - with an interest rate of 2.6 million per cent a year.

York Credit Union today told how it had helped the woman out of her debt crisis after learning she had not only signed up to that internet lender's staggering rate but another, which was also charging her more than 16,000 per cent APR.

In fact, she was paying more than £800 a month on the two loans, of which nearly £700 was going on interest.

Today Mike Horncastle, manager of the community bank, issued a stark Christmas warning: "No matter how much pressure you are under to get that must-have present, think twice and then again before accepting these kind of loan deals.

"As an interest rate these were scarcely believable, but these were regulated companies who are overseen by the Financial Services Authority. They were not doing anything illegal.

"However, they are targeting the most vulnerable sectors of society and, as is often the case, it is those who can least afford to pay who end up paying the most.

"Because it is Christmas it is easy to lose the plot. But these kind of deals, be they from door-step lenders or internet companies, avoid them plain and simple if you can."

The first loan, which came with an interest rate of 2,639,385.9 per cent APR, was agreed with Early Payday Loan Ltd (EPDL) based in Windsor, which lends up to £800 a time to clients.

On it website it states: "EPDL provides a clear and understandable service designed to help you manage your monthly finances."

The second loan, which came with an interest rate of 16,203.2 per cent APR, was agreed with Payday UK, based in Milton Keynes. That was for £225, but within 16 days the cost of repayment was £281.25.

Its website states: "Payday gives you money and peace of mind - just when you need it."

Both companies offer a typical interest rate of 1,355 per cent APR.

The Press spoke to a representative of Payday UK, but was told no one was available to comment. We attempted to contact EPDL, but no one was available.

In the York woman's case, York Credit Union was able to reduce her monthly outgoings from £817 to £177.

Mr Horncastle said: "It was clearly causing this woman some severe problems. I think many people simply either don't look at the APR or realise what the implications are.

"Sometimes people don't understand the emotional impact being in debt can have. People hide in their houses pretending not to be in when doorstep collectors come calling."

Today, York Citizens' Advice Bureau (CAB) also expressed concern at the enormous interest rates, which are legal because there is no statutory cap on the rates finance companies can charge.

Rosemary Suttill, the CAB's development and social policy manager, said: "It's possible to get away with such high APRs because they are very small loans of £100 to £200.

"If you tried to get that amount from a bank, even if your credit was good, they wouldn't look at you because they are only interested in lending thousands of pounds.

"I suspect that many people don't look at the APR at all. On Friday, we saw a client who said that the doorstep loans are always there when you need them.

"It's very hard to give don't borrow at Christmas advice' because we all want a little bit extra, but please try to think of the consequences for the coming year. You may enjoy Christmas, but are you going to enjoy the rest of the year?"

As an alternative to obtaining doorstep loans, she advised people to borrow money from York Credit Union, which she said lends money at considerably reduced rates.

No stopping customers at shopping centre

FEAR of getting into debt isn't putting the public off Christmas shopping, with York Designer Outlet heading for a record year.

David Aunins, retail operations manager, described the last two weekends as the busiest the centre has ever seen and the last three weeks had seen footfall in the centre, which gets about three million visitors a year, up two per cent.

He said: "We are delighted with how Christmas is coming at the York Designer Outlet, we are certainly heading for a record year here. I think the fact that we are the only covered shopping centre in the area and the 17 new shops we have added this year have contributed to a very encouraging performance."

He said the average spend of customers was up 3.6 per cent on last year, when the amount of money people spent was the same as 2005. That means this year the average spend is about £272 per customer.

Navigating through interest rate minefield

ANYONE taking out a £100 loan on the basis of the same 2.6 million per cent APR will have to pay interest of £1,503 per year; or £125 per month; or £29 per week; or £4 per day.

Jeremy Oliver, corporate finance director of York accountancy firm Garbutt & Elliott, who made the calculation, described the interest rate as "scandalous".

He said: "The annual percentage rate of charge (APR) is designed to help consumers compare the costs of similar products.

"It was introduced to prevent organisations offering apparently cheap loans then, in the small print, adding administration and other costs.

"It was meant to make the process much more transparent.

"This level of APR charged is clearly scandalous."

Anyone who wants to clarify exactly how much an APR will mean in loan repayments can use an internet calculator at www.pem.co.uk/common/calculators/loan.html

JAMES COOK asked people in York if they were afraid of getting into debt this Christmas.

Rosie Blass, 40, a lecturer, of The Groves, York, said: "I just want to consolidate a lot of things I've got. So instead of worrying about it in January, I'm sorting it out now. Coming up to Christmas, you worry and end up spending more than you planned."

Rob Racenis, 53, a laboratory manager, of Slingsby, said: "I'm not worried. I think it's just a commercial rip-off. People seem to lose it round Christmas. I'm a Scrooge, though."

Ann Loveley, 61, an auxiliary nurse, of Tang Hall, York, said: "I've been very careful this year. Sometimes I go well into my overdraft, but I started shopping much earlier this time. It's best to be careful and just get what you can afford."

Polly Meadows, 20, a student, of Bishop Burton, said: "I'm in loads of debt already, as every student is. I don't spend more at Christmas than normally, but if people do it's all right because it's not on yourself."

Where to go if you need help and support

For more information from the Citizen's Advice Bureau, phone 0870 126 4850 or log on to www.adviceguide. org.uk For advice from York Credit Union, visit www.ycu.org.uk or visit them at 15 Priory St York, YO1 6ET or phone 01904 676633.