Increasing Popularity Of Payday Loans Causing Debt Concerns

Fri, 20 Aug 2010

The number of applications for expensive payday loans in the UK has quadrupled over the last four years, according to new research by Consumer Focus.

A report by watchdog estimated that 1.2 million Brits have used payday loans since 2006, borrowing a combined £1.2 billion.

The ‘Keeping the Plates Spinning’ report also revealed that the market grew by more than 40 per cent last year, while nearly twice as many people took out a payday loan in 2008 as in the previous year.

Payday loans typically come with interest charges of between £13 and £18 for every £100 borrowed, although they can be as high as £30 per £100 depending on the provider. As a result, customers who do defer payments are often left with large debts .

Marie Burton, financial services specialist at Consumer Focus, said: "With the credit crunch, demand for short-term borrowing has significantly increased despite the eye-watering interest rates charged by some payday lenders ."

"Such expensive rates can leave consumers who defer payments, or take out repeat loans, caught in a debt trap."

"These products are controversial, but we don't agree with calls for them to be banned. Outlawing payday loans could leave some borrowers vulnerable to illegal loan sharks."

"Instead we need sensible safeguards now to stop borrowers becoming dependent on this high cost credit and prevent even more stringent controls being needed in the future."

"We also need banks to provide alternative short-term credit to suit the needs of cash-strapped consumers."
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