Payday Loans – Can they be Used Sensibly?

November 9, 2012

Charlotte PearceMany hard up families are turning to payday loans in desperation for a quick fix.

The ease of the borrowing process overshadows the real issue of how that loan will be repaid at the end of the month.

Research by Which? showed that nearly half of all payday loan borrowers found they could not afford to repay their debt, with over a quarter making the application knowing they would be unable to repay the debt.

With more and more people are turning to credit for everyday living expenses with 52% using credit cards compared to 38% using payday loans. The payday loan trend is on the rise.

Which? executive director Richard Lloyd said: ‘It’s shocking that half of all people taking out payday loans have been unable to pay the money back and it’s a depressing sign of the times that almost a third were hassled by debt collectors in the past year.

‘Payday loans are leaving many people caught in a spiral of debt and taking out more loans just to get by. That’s when they’re hit by excessive penalty charges and roll over fees.

‘The Office of Fair Trading must do more to clamp down on irresponsible lending by introducing tighter rules for payday lenders. Better affordability assessments and clearer charges would be the first steps to clean up the industry and better protect consumers.’

Which? research found that more than half of payday loan borrowers regretted making their application.

In a stark comparison to the Which? research the chief executive of the Consumer Finance Association (CFA) claimed customer satisfaction was high, with many borrowers repaying their loans in accordance with their terms.

Russell Hamblin-Boone said: ‘The Which? report highlights the need for more responsible lenders, such as the CFA’s members, to work closely with the Government and the regulators to stamp out practices which are detrimental to consumers and damage the reputation of the whole industry.

‘However the Which? report shows a very different picture to the one that is seen by our members.

‘Similar independent research shows high satisfaction levels (93 per cent) and the vast majority of customers paying back their loans on time.

‘Responsible lenders have no desire to lend to people that cannot afford to pay back their loans. It is bad for the consumer and bad for the lender.’

It is important people start budgeting for Christmas and shop around for those special gifts, do not over commit yourself by borrowing more than you can afford.

If you do need to use credit to get you through these are some interesting comparisons to think about…..

Borrowed Interest (typical) Period/Term Total Repayment
Credit Card £100 19.9% APR 30 days £101.66
Payday Loan £100 812.22% APR 30 days £120.00

 

InControl says…

If you are struggling to meet your commitments and you find yourself regularly looking at the use of further credit, call us for an obligation free budget assessment.