Struggling borrowers are being urged to steer clear of illegal loan sharks offering “quick cash fixes” that will make their problems worse.
The Local Government Association (LGA), which represents councils in England and Wales, said money lenders operating outside the law may charge sky-high interest rates, rely on extortion, rarely issue paperwork and are likely to plunge people into deeper debt for longer.
It said that in the most extreme cases, loan sharks have been prosecuted for blackmail, violence and kidnap offences.
The LGA said anyone experiencing money problems can contact councils and their partner organisations for help.
Many people across the UK have suffered income shocks due to the financial impact of the COVID-19 crisis, with 8.7 million having been furloughed, and others seeing their pay cut or losing their job entirely.
On top of this, latest figures show 12,652 people a week in the UK are seeking help for problem debt — the equivalent of one person every 48 seconds.
The LGA said it is concerned people may wait until they are in severe financial difficulties before they seek help, or could turn to loan sharks instead.
Many firms are offering payment freezes on financial products such as mortgages to help those with sudden holes in their budgets because of coronavirus.
Small, relatively affordable loans are also available from community development financial institutions (CDFIs) and the credit union sector.
The LGA also said that households awaiting a universal credit payment may be entitled to a budgeting advance.
It said some councils are using data to step in early by identifying people with low-level payment difficulties and targeting them with support, while others have established discretionary hardship funds to help lower income households facing considerable problems with rent payments.
Simon Blackburn, chairman of the LGA’s safer and stronger communities board, said: “We know many people are struggling to make ends meet during the coronavirus crisis, but loan sharks should be avoided at all costs.
“These illegal loans typically come with astronomical interest rates, soon spiral into uncontrollable debt that can never be repaid, and are typically enforced through intimidation and violence.
“Anyone struggling with debt problems can contact their local council or advice provider first, while charities also offer similar services.
“These will all be focused on offering genuine help in the most affordable way, rather than illegal money lenders who profit from other people’s misery and should not be used for any quick cash fix.
“With councils’ budgets under significant pressures, the government needs to ensure local authorities have the necessary funding to support those in need.”