One million people borrow to pay household bills

| September 12, 2012 | 0 Comments
One million people borrow to pay household bills

One million people are turning to payday loans to pay their monthly bills and there are fears that the situation could worsen when Universal Credit is introduced next year.

According to a new study by Santander more than one million people in the UK use payday loans to pay their household bills, despite the high levels of interest charged if the debt is not repaid promptly at the end of the month.

Payday loan companies often charge rates of around 4,000 per cent if a loan is rolled over at the end of the month.

Many people are forced to turn to payday loans if they are unable to access cheaper forms of credit such as personal loans from mainstream lenders, bank overdrafts and credit cards.

Nearly 14 million people, more than a quarter of the entire population of the UK, use some form of credit to pay their household bills, including personal loans and credit cards.

The average amount borrowed is £259, according to Santander’s research.

The most popular form of borrowing is a bank overdraft, with credit cards in second place, and payday loans in third place.

Reza Attar-Zadeh, banking director at Santander, said: “The cost of living is going up, driven in part by the rising cost of household bills, and as a result, millions of people are regularly borrowing money to make ends meet which cannot be sustained in the long-run.

“The fact that only a third of people are regularly looking for ways to reduce their monthly bills is worrying, as there are a number of opportunities to bring these costs down that require very little effort or change.”

The bank is encouraging consumers to look for better deals on their utility bills or TV service.

Meanwhile more than 500 pages of evidence has been submitted to the Commons’ Work and Pensions Committee by charities and other groups, expressing concern over the planned move to monthly payments under benefit reforms.

Under the new Universal Credit system, benefits will be paid in one monthly lump sum, rather than throughout the month as they are at present.

MPs, charities and consumer groups are concerned that this will force more people to use payday loans to make ends meet.

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