Relief as payday loans demand tapers off

19/02/2009

Customer demand for short-term, high-interest "payday loans" appears to be easing, after a recent increase.

According to financial website Moneysupermarket.com, the number of people seeking the loans tripled from August 2007 to August 2008, as the credit crunch shut more and more borrowers off from securing credit on the high street.

However, the analysis also showed that the trend has turned "steady" over the past six months, in contrast to the previous "frighteningly steep" upwards climb.

Payday loans providers have broader approvals procedures for customers - but often come with much higher interest rates attached.
Recent research from the Conservative party showed that one loan on offer to UK consumers had an APR equating to almost 10,000 per cent.

“Pay day loans have a horrible habit of becoming a revolving credit facility and then the huge annual percentage rates become a reality and an anvil around peoples neck, even if the original loan was for only £500," EuroDebt director Kevin Still said.

"We see many clients with multiple loans and a number of these providers have very punitive clauses in their credit agreements, some we have reviewed recently stipulating the consequences of taking professional debt advice. I would like to think that consumers are becoming more wary of some of the providers in the market rather than seeing this as the first green shoots of coming out of recession because for many I still believe this is still the lull before the storm, as bankruptcy figures have only just started to rise markedly compared to the same quarter a year ago.”

Tim Moss, head of loans at price comparison site moneysupermarket.com, added: "The economy is still in a dire state. There are three times as many people needing a payday loan each month than in 2007, but at least the haemorrhaging has stopped."

He added: "We will know the economy is starting to recover when the trend starts heading back down again."

Tags; Debt Management and Banking, Credit Card Lifestyle,

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