Two new studies into the use of payday loans have highlighted concerns over the use of the short-term credit facilities.
Research has shown that over one quarter of young adults will apply for a payday loan in the next six months, whilst another report has warned that nearly half of all payday borrowers have been unable to repay the loan. In addition, 57% have missed at least one payment and have incurred additional charges due to missed or bounced payments. And nearly 30% of borrowers admitted to accepting a loan in the knowledge that they will not be able to repay it.
And is this a big problem? Well, 5 million people are likely to seek a payday loan in the next six months, which is a 50% increase on last year. So yes, this is a big problem.
The Consumer Finance Association that represents the payday loans industry has said that the increase in demand for these loans is due to the convenience with which they can be arranged. They also state that their members lend responsibly and are in the process of introducing a new good practice customer charter.
But for me, the payday loans industry casts its net too wide and offers loans to too many people who are using them as debt solutions, not credit solutions. The idea of lending money to people who need short-term cash to get through to the next payday and charging a relatively high fee for that cash, seems unwise at best and predatory at worst. Unless the cash is needed for a genuine ‘one-off’ expense, the danger is that next month, the need for extra cash will be even higher, as some of next month’s money will already have been spent on the interest payable on last month’s payday loan. And so it goes on, snowballing every month.
There are other ways of getting short term cash – for instance, careful timing of purchases can mean that up to 56 days’ interest free credit can be obtained from credit cards, by paying off the full amount each month. This is effectively the same as using a payday loan, but without the huge rate of interest (one well-known lender quotes an APR of 4,214%). But many people no longer have access their credit cards, either because they are up to their credit limit or have been suspended by the lenders due to missed repayments. Which means that the borrower has a debt problem, not a short-term credit problem.
And the good news for people with debt problems is, we can help!
To find out how, call me today on 01709 331300 or email me for a free, no obligation discussion of all the options.