Debt fuelled by payday loans?

31/10/2011

A survey by debt charity Debt Advice Foundation (DAF) revealed that 41 per cent of people who have contacted them struggling with debt claim their financial problems result from taking out payday loans.

Furthermore, online searches for ‘payday loans’ have doubled in the past year, reflecting the sector’s rapid expansion.

One in four people who did take out a payday loan used it for essentials for the family, including food, whilst 44 per cent used it to pay off other debts.

Of these payday loan customers, 49 per cent felt that they had not been clearly informed about the rate being charged and how much they would subsequently owe.

David Rodger of DAF, told Which: “Many lenders are quick to point out that an APR is not an appropriate measure for these types of short-term products and that most borrowers are happy with the cost of the credit in monetary terms.

“However, for those who exceed the loan period, these high interest rates can rapidly transform a relatively small and manageable debt into a much larger liability.”

He added, “Many payday loan companies actually advertise the fact that they don’t check a borrower’s creditworthiness, which can result in people accumulating multiple unaffordable high-interest debts. We believe lenders should be obliged to inform credit reference agencies when a loan is taken out and check whether an applicant has any current outstanding liabilities.”

Which? debt expert Martyn Saville stated: “Payday loan companies are moving aggressively into a lending market that currently fails to cater for too many low earners and those unable to access mainstream lending.

“Unfortunately, poor practice by some payday loan providers risks leaving many consumers vulnerable to unmanageable problem debt.”

Tags; Current UK Economy, Income Worries and Debt, Credit Card Lifestyle,

• Share
• 
• 
• Store
• 
• Follow
•