Credit Action warns over pay-day loans

05/10/2009

Debt charity Credit Action has warned people about the dangers of turning to pay-day loan companies as a source of quick finance.

Speaking to Sky News, Chris Tapp said that many consumers aren't told what APR they will pay on the loan, while others are encouraged to borrow to pay off one debt knowing they won't be able to repay the second.

He added that people can quickly slip into a debt spiral which they will find extremely difficult to get out of.

Another worry is that not all firms run credit checks on people seeking finance, so many don't know whether they can afford to meet the repayments.

John Lamidey, of the Consumer Finance Association, told the broadcaster that he cannot guarantee that all companies do the required research to determine whether those in debt should be borrowing extra money.

Pay-day loans have increased in popularity since the start of the recession and debt solutions firm EuroDebt has seen an increase in the number of new clients starting a Debt Management Plan'>Debt Management Plan or an IVA with one or more pay day loan agreements amongst their list of creditors.

Many of these were in a debt spiral prior to taking out these loans and have only compounded the situation.

What is of most concern is that people already struggling their debts have entered agreements that can have very punitive clauses when the borrower falls behind on payments, which combined with the enormous interest rates can quickly lead to problems.

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