50% increase in Brits turning to payday loans

| November 13, 2012
50% increase in Brits turning to payday loans

Research by insolvency trade body R3 has revealed that the numbers of people turning to expensive payday loans to fund essentials is soaring.

Five million Britons are planning to take out a payday loan within the next six months, R3 found, 50 per cent more than a year ago.

A quarter of people aged between 18 and 24 years are expected to take out a payday loan, and 12 per cent of people in this age group have prioritised loan repayments over food.

Thirty-two per cent of those who take out payday loans do so to pay household bills, despite the prohibitively high interest rates charged.

Payday loan companies have been criticised for leading people into a spiral of debt.

R3 found that one in three people are unable to repay their first payday loan, and are forced take out another one to make the payments on the first.

The situation is likely to worsen over Christmas, with many payday loan companies encouraging people to take put loans to pay for the festivities.

Interest charges on payday loans can be as much as 4,248.9 per cent APR.

A recent report by consumer group Which? found that half of payday borrowers are unable to repay their debt.

The group reported that 29 per cent of payday lenders approve loans even though they know the applicant will be unable to repay them.

The Office of Fair Trading is investigating accusations of irresponsible lending by payday loan companies and is expected to introduce tougher regulations in spring 2013.

David Fisher, Director of Credit, at the OFT, said: “We expect payday firms to be responsible, making sure they only lend to those who are able to repay the debt.

“We would be particularly concerned if payday lenders were deliberately targeting vulnerable consumers.”

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