Payday loans trapping people in debt
Payday loans have soared in popularity over the past few years, but consumer group Which? warns they are trapping people in a ‘downward spiral of debt’.
Problems start to escalate if people are unable to pay back their loan on time, with some companies charging excessively high penalties for late repayments.
Which? discovered that Quid24.com charged £150 for repaying a loan 10 days late.
The majority of people who take out a payday loan do so to pay for everyday items such as groceries and petrol.
With their household incomes already failing to meet the cost of essentials, having to pay high charges can force people to roll-over their loan to the following month, leading to even more costs.
Some payday loan companies charge interest rates as high as 4,000 per cent APR.
Which? found that a third of those who had taken out a payday loan had suffered greater financial problems as a direct result.
A quarter said they had incurred hidden charges, including high fees for reminder letters.
Eight of the 34 payday loan companies surveyed by Which? failed to carry out credit checks before they approved a loan and many websites did not display terms and conditions.
Which? is calling on the Office of Fair Trading (OFT) to put a cap on the fees payday loan companies can charge and to ensure that they adhere to consumer credit and lending rules.
Which? executive director Richard Lloyd said: ‘With 1.2 million people taking out a payday loan last year, it is unacceptable for this rapidly growing number of people to be inadequately protected from extortionate charges and dodgy marketing techniques.’
Payday loan companies were recently criticised by the Bishop of Durham for charging ‘sinful’ and ‘usurious’ interest rates.
With many families turning to Payday loan companies as a last resort, the Rt Rev Justin Welby expressed concern that people might start to think that interest rates of more than 4,000 per cent were normal.
“An interest rate of over 4,000 per cent has been considered usurious since the time of Moses. It’s no different now,” he said.