A new report by Church Action on Poverty highlights the vice-like grip unscrupulous moneylenders have on millions of borrowers.

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The distressing report says three million people are paying interest rates of up to 300% because they do not have an account with a high street bank.

One reason for the exorbitant rates is that interest is calculated annually, not daily - so repayments on a loan are often not taken into account for many months.

So where can the hard up turn to in times of need?

Keith Toneur, of anti-poverty campaign group Credit Action, says the options are highly limited.

"There are small organisations and churches that sometimes run schemes but not much else."

A popular option is local lenders such as Provident Personal Credit, which has a history of lending to disadvantaged families.

These companies have local branches and collectors go from door to door on a regular basis. They specialise in short-term loans - 28 weeks is the average - but interest rates can be high. A typical APR might be 75%.

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The advantage, says John Lamidey of the Consumer Credit Council, is that borrowers are not charged if they miss "one or two" weekly repayments.

"Because many people are on fragile incomes, if they cannot pay one week you accept that and do not charge extra," says Mr Lamidey.

Another alternative is the government-run Social Fund, which allows the poor to borrow money for essentials against their benefits.

"The problem here is that repayments, which can be up to �10 a week, are docked at source and so some people will find themselves having to cut back on food," says Mr Toneur.

By far the best option is a credit union, although these are still thin on the ground, especially compared to many of the 80 other countries where they are active.

There are currently 672 credit unions in the UK with about 270,000 members, according to Abcul - the Association of British Credit Unions.

Credit Unions

Began in Germany in 19th Century Spread to USA in early 1900s Can be found on all continents, in about 80 countries Over 100 million members worldwide In UK current assets are �170m

In America 30% of the population are members of credit unions; in the Republic of Ireland it's 45%.

Credit unions are financial co-operatives where members save into a common fund. Members can then call on the fund for low-interest loans. Credit unions are prevented by law from charging more than 1% per month interest, which translates to an APR of 12.68%.

The borrower pays nothing for insurance and there is no loan arrangement fee.

The unions are established around a common bond, usually a community or a group of workers. British Airways staff have one of the biggest and credit unions in the country.

But tough government restrictions are believed to have hampered widespread growth of credit unions.

Efforts are now underway to loosen the ties, following recommendations last year by a government task force.

Measures include extending the maximum repayment period from two to three years, allow greater flexibility in the common bond requirement and setting up a central service organisation to spread best practice.

Credit unions however, want even greater flexibility - many feel the extended three-year limit is still too short.