Recently published figures have revealed that there are two times as many people taking out expensive loans as there were 9 months ago. Moneysupermarket.com released the new statistics and has said that the number of loans made by people to tide them over until payday has increased radically. An additional 130% of people took out payday loans this May as compared to the numbers which were taken out in August 2007. It has been suggested that issues regarding the rising cost of food and fuel are responsible for the surge in loan applications, including payday loans which charge over 1,000% interest. The loan market is just one of the financial sectors which are being affected by the credit crunch and mortgage slumps. The doubling of the number of people taking out high interest loans also confirms fears that personal debt and irresponsible spending in the UK will get worse before it gets better.
Speaking about the new findings, Tim Moss, the head of the loans department at Moneysupermarket.com said: "The rise in payday loans is astronomical.” He added that it: “shows just how difficult people are finding it to cope day to day.”
According to The Press Association: “Payday loans, which are offered by groups such as Payday UK, Payday Express and Redhouse Financial, lend people sums of up to £1,000 on a short-term basis, usually to tide them over to the end of the month when they receive their pay cheque.” But those who do not pay back the loans within expected timescales can face astonishingly high rates and get into trouble.
The problem with these loans is that they usually have extremely high interest rates associated with them. Often annual percentage rates can by just over 1,286 %, which is like borrowing £100 and having to pay £125 on your loan in interest. The loans have come under fire for being unfair because they tend to be borrowed by those who are on low incomes and those who cannot find credit elsewhere because of low credit scores.
Many people also turn to payday loans because they often get a quicker response than they would with a credit card company or bank which could provide better interest rates. It can take weeks for a credit card to come through, but payday loans can offer financially distressed people almost instant solutions.
16% credit cards or 20% loans are not usually available to those who choose payday loans because of a lack of credit history or poor credit in the past so by that fault the poorest people are charged the most interest.
Moneysupermarket.com’s Tim Moss also commented that: “As disposable income is being squeezed through increases in the cost of food, fuel, utilities and general living necessities, these loans are increasingly used to help those on a tight budget."
“Payday loans should only be taken out when it's absolutely necessary.” Moss advises. “and you are sure you can pay it back quickly. Anyone looking for longer-term credit or unable to pay off the debt immediately, should steer clear of them.”
Sarah is an author of several articles pertaining to Personal Loans. She is known for her expertise on the subject and on other Business and Finance related articles.
