Britain’s personal debt crisis has rocketed to the extent that six out of ten borrowers would default on loans and credit cards in just three months of losing their job. With more budgets feeling the squeezed, many people are likely to fall behind on payments, and companies will seek out debt collectors to recover their costs.

Since the summer of 2007, Banks, credit card companies and non-secured lenders have stopped serving lower-income households resulting in under-served market.  Provident Financial is among lenders who offer loans to low-income households across Britain, however, recently the company announced plans to recruit more debt collectors this year after it recorded a surge in ‘risky’ consumers turned down by banks.

Reports suggest that Provident’s agents currently visit one in twenty British households and many in this category are said to take out smaller loans on average around £400, which is paid back in weekly instalments. It also comes with a sizeable “fixed charge” attached.

Door-step lenders cashing in

The company wants to employ between 200 and 250 people this year, at least 80 of whom will go door-to-door to collect outstanding debts. Collection accounts for “99pc of the man hours,” says the company. Market figures show that Britons accumulated more than £1 trillion in debt encouraged by a decline in cost of borrowing and a buoyant housing market. The same borrowers are now finding it difficult to make repayments as the cost of living increases.

It is thought that dozens of borrowers with six-figure debts visit Citizens Advice Bureau (CAB) offices every week looking for help. The charity handled more than one million consumer debt cases in 2003 to 2004 and the recent economic downturn means the figures could be much higher.

According to recent reports, the growing debt crisis coupled with rising unemployment levels has forced many people to default on credit card balances and loan repayments. The average household in the UK has a debt of £9,550 excluding mortgages, as indicated in statistics published by charity Credit Action.

Provident’s customers on average pay back £3 a week for 57 weeks for every £100 borrowed which means they pay back £171 on a £100 loan. Market insiders say that a large number of doorstep lenders price their services at very high rates despite record low interest rates cuts by the Bank of England to 0.5pc.

Why quick-fix loans are not ideal

Households whose financial situation has been worsened by credit crunch continue to be charged annual percentage rates well into three figures. Although getting a loan from a doorstep lender could sort out immediate cash problems, experts warn that consumers who become almost dependant on them will find themselves in deeper financial troubles.

Interest charges are out of proportion given the increased risk of lending among people with bad credit history and reports suggest that there are high overheads associated with a national network of paid agents which many consumers are not aware of.

Industry critics also say that lenders such as Provident and Vanquis are “dealing with customers who are more likely to default if they have been turned down by high street lenders.”  People who are desperate for cash are warned that they could find themselves paying more than they can afford, eventually getting trapped in a debt cycle.