ibnlive » Business

May 23, 2008 at 12:52pm IST

Cheap loan ads on Facebook has hidden costs

London: There are 70 million active users on Facebook-potential goldmine for advertisers, and potential for them to cheat.

A debt charity warns that credit companies are now using the social networking site to target young people. The demographic of people who use sites like Facebook tend to be exactly the kind of people advertisers want to target, so it's no surprise to see advertisements offering quick and easy money-such as payday loans and secured against a salary.

The problem is that many of these ads are not up front about the true costs of their loans, says Credit Action's Chris Tapp.

He also says, some potential borrowers could face startling interest rates but that's not made clear in the ads.

"It's an ad for a payday loan, it tells you how much you can borrow. You can borrow £80 to £750 on Friday and it's all very quick and easy. What it doesn't have, it has to have to comply with regulations is the typical APR, the interest rate you are likely to be paying for that loan," says Tapp.

He says there has been a marked increase in these kinds of ads since the credit crunch. Banks are more cautious about extending credit which has made it harder to borrow money from traditional sources.

Credit action has complained to Britain's Office of Fair Trading about companies, it says they are breaking UK's advertising rules by failing to give details about interest rates.

The Office of Fair Trading says it's investigating Facebook too and is looking into the matter. "Advertisers on Facebook are required to follow the site's guidelines for appropriate advertising and to meet local laws and regulations," said a spokesperson for the Office of Fair Trading.

The long-term credit implications can be damaging if borrowers don't know what they're getting in to, warns Monilink, a mobile banking company.

Up to 20 per cent of customers immediately go into debt or are still in debt on their pay day and they are paying off their debts with the credit cards as well, rather than with their savings or current account balance.

Credit Action says it wants young people to avoid falling into a debt trap -it’s urging Facebook users to report these ads that may break the rules.

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