As desperately struggling families seek a quick solution to their financial troubles, it’s the payday loan firms that are emerging as the winners in this recession.
The debt spiral is becoming all too common, with alarming statistics now revealing exactly how we’re using this type of dangerous borrowing.
Whereas once a loan was taken out to pay for a luxury expense such as a holiday, or car, now 38% of payday loans are used to pay for essentials such as food and fuel. More worryingly 29% of payday loan customers know they cannot repay what they borrow when they take out credit in the first place.
That cash is also used by a fifth of customers to cover their rent – and at an annual interest rate of up to 4,214% APR it’s no wonder that half are unable to pay back the loan and 57% have missed a payment and incurred charges.
Consumer champion Which?, which conducted this alarming research, commented that the Office of Fair Trading (OFT) must clamp down on the industry before it’s too late.
Alternatives to payday loans
Although this survey has revealed the stark reality of the nation’s debt and use of these loans, there are alternative (and far cheaper) solutions.
Credit unions are organisations that are not-for-profit and community-based that provide affordable loans to its members and no nonsense savings accounts. You can find your local credit union using the Association of British Credit Unions Limited. You may discover that they allow a wider timeframe to repay, and offer more affordable borrowing for those in debt with a poor credit history. (You won’t get charged a ridiculous 4,000%+ APR like with many payday loan companies, for a start!)
Another option could be a budgeting loan which you can get from the Government if you’re on income support, income-based jobseeker’s allowance etc. and will cover you with between £100 and £1,500 for a range of expenses. Plus you have 104 weeks to pay it off, interest free.
If you’re worried about debt and aren’t sure what to do about it, you can get excellent free debt advice from charities. These include the Consumer Credit Counselling Service (CCCS), National Debtline and the Citizens Advice Bureau. For more advice on managing your debt we’ve got a cracker of an article that should give you some hope and show you the end of that difficult money-worry tunnel.