LENDERS HAVE REJECTED ALMOST five million credit card and loan applications over the past six months, forcing borrowers towards ever more "toxic" sources to finance Christmas, according to research commissioned by MoneyExpert.

People aged between 25 and 34 are most likely to have their applications rejected. More than one in five (21%) applicants in this age band was refused a credit card and one in 10 could not get an unsecured personal loan.

MoneyExpert director Sean Gardner says: "The banking crisis means lenders are terrified to lend to almost anyone. They are battening down the hatches and focusing on getting as much money back as possible.

"In the current climate, lenders are tightening up on already tightened rules for new applications. Anyone whose credit record is even remotely suspect risks rejection. Banks want to recover their bad debts and they don't want to create more of the same."

Painful though this is, experts are warning that borrowers need to resist the temptation to look beyond the mainstream lenders towards loans that could seriously damage their wealth.

Andrew Hagger of Moneynet says: "As the global financial crisis deepens and borrowing options continue to dry up, the temptation to grab at anything to ease cashflow problems is understandable, particularly in the run-up to Christmas. But the exorbitant interest rates involved will only lead to deeper debt."

To help borrowers steer clear of trouble, the Sunday Herald warns of the top five toxic loans to avoid: Payday loans Payday loans give you money and peace of mind, just when you need it! At least, that's what the adverts claim. And a payday loan sounds like the perfect way to stretch your budget until the next pay cheque.

The loans are for small amounts, usually between £100 and £1000, and you pay back the debt when your wages next hit your bank account. In other words, you borrow the money for about 31 days. Also, a payday loan is almost instant and there are few - if any - credit checks on customers.

So what's the catch? If you wanted to borrow £100 from Payday UK, the APR would be 1286.1%, according to Moneysupermarket. Some companies charge as much as 2000%.

Supporters of the loans argue that it's unfair to look at annual interest rates when the debt is cleared within a month, and they have point. If you look at the actual charge for the monthly borrowing facility, you would pay £25 for every £100 at Payday UK. But you can roll over the debt for another month or two and it can easily spiral out of control.

Hagger says: "Payday loans are billed as the easy, no-hassle way to bridge the gap until pay day, but these are the very worst villains of the piece, with interest rates equating to more than 1000%."

Log book loans If you own a car, you can use the vehicle as collateral and borrow between £500 and £50,000. You don't even have to technically own the car. If you are near the end of a finance deal, you can still apply for a log book loan.

The loans are billed as ideal for people with bad credit records because there are no credit checks. And like payday loans, you can get the money almost instantly. But again, they are expensive, with annual interest rates of more than 430%.

Hagger says: "If you are struggling to make ends meet, how will you manage with the added burden of massive loan interest to pay? A loan of £1500 will turn into £1845 in just one month and a staggering £4180 over just 78 weeks. And if you can't keep up with the repayments, you'll lose your car. It's sheer lunacy."

Credit card cheques Credit card firms are still churning out cheques despite criticism from consumer groups and the media. The cheques are tantamount to an invitation to rack up expensive debts - and they land on your doorstep addressed to you personally.

Cardholders are often encouraged to use the money to consolidate debts, pay bills or even finance a new car or a dream holiday. But the typical APR on a credit card cheque is about 27%, compared with around 18% on a credit card.

If you use the cheques, you will also often be stung by a handling fee of 2.5% or even 3%. And most cheques do not come with an interest-free period so you will start racking up interest at the high rate immediately.

Credit card cash advances If you've run out of money in your current account it can be tempting to withdraw cash on a credit card. Don't! It's ruinously expensive. Card firms charge interest of up to 30% to withdraw cash. Like credit card cheques, there is also a handling fee for cash withdrawals and you start to clock up interest immediately.

Unauthorised overdrafts If you need an overdraft, make sure you arrange it with your bank. If you slip into the red without agreement, the charges can be high. For example, Royal Bank of Scotland charges interest of 19.24% on an arranged overdraft but that shoots up to 29.84% if you borrow without authorisation - not to mention the various fees and charges banks levy on transactions once you're in the red.

Hagger says: "Don't think it's something that won't happen to you. Arranging an overdraft buffer could save you from setting off a chain of events that snowballs into a bigger problem. It costs nothing and you don't have to use it, so better safe than sorry."