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.
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