Millions set to take out payday loans
New research claims more people are turning to payday loans as they struggle with managing their finances.
New research from insolvency experts R3 claims that 3.5 million people in the UK are likely to take out a high-interest payday loan over the next six months.
R3 interviewed 2,000 people for its research. It says that it found Britons more worried about money than at any point since it began conducting research into personal debt.
John Lamidey, of short-term loan trade body the Consumer Finance Association, refuted the R3 figures on BBC Radio 4’s Today programme. “Only half the people in this country borrow money at all,” he said. “Even if [the R3 research] is right, the extrapolation should only be one and three quarter million [people], not three and a half.”
Payday loans, or micro-loans as many in the industry would prefer we now call them, offer short-term loans designed to help tide people over to pay day.
If you pay the debt back quickly, it can be cheaper than going into the red with your bank or taking out a credit card.
However, interest rates can be eye-wateringly high. In September, a Which? investigation found one payday loan company offering an APR of 16,203%.
Last month, we looked at a new offer from a company called InstantLoansDirect.com. It was offering an interest-free loan for eight days followed by an APR of 448.3%. But this was criticised as a cynical marketing exercise to get people to take out a loan.
No cap on interest rates
The Government has resisted calls to cap interest rates, as it says that would push people into the hands of illegal loan sharks.
Citizens Advice says that the number of people accumulating debt through payday loans has quadrupled in the past two years.
And we’ve become increasingly concerned at advertising promoting payday loans as a means of affording clothing, nights out and even festival tickets.
Other options
If you’re struggling for money at the end of the month, there are a number of options open to you.
One is to talk to your bank about a temporary overdraft extension, giving you a buffer until your next payday. Or, if you can, switch to a bank that offers an interest-free overdraft. Santander’s Preferred Account currently offers one for 12 months. However, to be eligible for this account, you need to be able to pay in £1,000 a month.
Another option is to take out a 0% balance transfer credit card, if you’re eligible for one, or even a low-interest rate credit card if you think you won’t be able to pay back the debt promptly.
The best option is to try and cut back your spending, meaning you can get through to the end of the month, and start building a savings pot for use in emergencies. To get on top of your budgets, you might like to give the lovemoney.com Money Track tool a go.
And if you’re struggling with mounting debts, you can get free advice from charities such as the Consumer Credit Counselling Service (CCCS) and Citizens Advice.
More: Lender offering tempting 0% payday loan | Why payday loans suck
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One word of advice on taking out payday loans - DON'T
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"If you’re struggling for money at the end of the month, there are a number of options open to you." The one option that is never mentioned is to spend less and live at a standard you can afford-- without mortgaging your future and enslaving yourself to the boss or the bankster. Terribly old-fashioned and all that, and our wonderful debt-ridden consumerist economy might be sunk if too many of us lived that way, ignoring the clamour of advertising. But I did, and I'm glad I did. even when politicians and the thriftless and feckless gang up to rob me of my savings. I even waited till I had cash before buying my home. There are some things money cannot buy at any APR, and the deep, quiet satisfaction of self-reliance is one of them. Another joy is to behold the passing parade of 'must-have' trash and know that one does not desire a solitary thing. A particularly keen pleasure at this season, by the way.
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I've always set a budget on everything that I can, but when you are used to a certain amount of money coming in each month, then it halves, that's when problem starts. My partner and I were both working up until 3 years ago when he'd taken ill and not been able to work since. Our income halved, but bills still needed to be paid, we also had 2 children that were living at home at the time, so it was more than a struggle. The last 6 months, both of the children have left, and even though there are only the two of us, the bills hasn't fallen, nor the income gone up. Anybody can only budget so far before having to borrow. Unfortunately because of my ex partner, I now have an atrocious credit rating, so getting an overdraft from the bank is impossible for me, as well as getting credit cards. And when I did fall ill in the middle of the year, again, we were £200 down for a couple of month, 3 months later, I am still having to borrow from these payday loan to get myself straighten. Christmas IS overrated, and because of our money circumstances, at least our children knows the situation and DON'T expect anything fantastic, if at all any presents from us, they are grateful that we are around to spend the time with them. Nobody can diss people for borrowing from banks, credit card companies nor payday loans until they get themselves in a situation that cannot be helped, ALTHOUGH, the people that uses those resources just to keep up with the Jones, that's a different matter, in my mind, they are just stupid with money!
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13 December 2011