Christmas shoppers are being tempted with offers of "interest-free" cash loans - but some expect repayment within two weeks before an interest rate in excess of 500 per cent kicks in.
Cash Burst Ltd - trading as Cashburst - has been advertising on radio throughout December, offering "interest-free" loans of $500.
But the interest-free period is only for two weeks. After that, interest is charged at a rate of 552 per cent per annum.
Cashburst said the interest-free period had only just expired for most of its first raft of Christmas customers, so it couldn't say how many had been charged interest.
It sets up loans for a maximum term of six weeks. A customer who took a $500 loan interest-free for two weeks, and then took a further four to pay it back, would be charged $230 in interest.
But if the customer was unable to pay the loan off within six weeks and instead took a year, that $500 loan would cost them $2790, plus penalties. The average Cashburst loan is about $300 over a 30-day period, attracting interest of $138.
North Shore Budgeting Service's Brian Pethybridge was aghast at the interest rates. "Next they'll be asking for children as collateral."
He said it was a huge concern and people could get into "financial slavery" to lenders. "Contracts are always all in favour of the lender. If it's so easy to get cash, there's always a catch."
Darryl Evans, of Mangere Budgeting Service, said he had one client who took out a $137 loan which turned into more than $1600 when her furniture was repossessed and charges for its storage were added to the loan. "There are a lot of families with bad credit who are often left with no other alternative. I would consider these rates to be in loan shark territory."
Evelyn Cole, of the Ministry of Consumer Affairs, said the rates were not unusual: "The issue you've identified is with small amount loans or loan sharks, depending on how you choose to describe them."
All financial services firms have to be registered with a disputes resolution scheme.
Other lenders with high interest rates include Payday Loans, which advertises rates "as low as 1.38 per cent a day" - 503 per cent per annum. SaveMyBacon.co.nz charges an even higher rate of 547.5 per cent per year, while the biggest we found was Cash in a Flash, advertising "Christmas loans for Kiwis" at 584 per cent per year for new customers.
Cashburst's director is listed as Steven Thomas Vodanovich. A man who answered the phone at his house, and would not give his name, said the company would only answer questions via email.
A person signing as "Captain Cashburst" said: "The rate is similar to competing unsecured short-term lending products."
Financial Services Complaints Ltd chief executive Susan Taylor said there had not been complaints against Cashburst. "If there were complaints we'd be looking to make sure the interest rates were properly disclosed and there was no undue influence at the time of signing."