You might think it would be hard to borrow money these days, what with all this talk of market meltdown and debt disaster. But it’s actually very easy.
Companies such as Wonga.com and Quickquid.co.uk will lend up to £1000 in a matter of minutes – almost no questions asked.
The loans are dubbed “payday” because they are intended to tide you over until your next pay cheque – a bit like a cash advance on your salary. You can usually borrow between £100 and £1000 and the money must normally be paid back within 31 days.
Some estimates suggest that more than one million people a year take out a payday loan – and you can see the attraction. You can apply online and get your hands on the cash within an hour. Why, you could even sort out your loan in your lunch hour. Most firms don’t carry out a full credit check either, so you might qualify for a payday loan even if you have struggled with debts in the past.
But the quick credit comes at a price – with annual percentage rates (APRs) of more than 4000% in some cases.
Wonga.com, for example, would charge £47.42 if you were to borrow £207 over 20 days, which works out at an APR of 4214%.
The companies claim that APRs are misleading – and they have a point. You don’t borrow the money over a year, so why look at an annual percentage rate. But £47.42 is still a hefty charge for a £207 loan.
Most firms also allow you to roll over the debt for another month if you cannot pay back the money within 31 days. You could then end up paying interest on top of interest – and the debt could rapidly spiral out of control.
Payday loans are controversial. A number of MPs, notably Stella Creasy, the Labour MP for Walthamstow, are calling for a crackdown on the booming trade.
In the meantime, I would be wary: the number of people approaching Citizens Advice with debt problems caused by payday loans has quadrupled in the past two years.
A payday loan should be a loan of last resort – and if you find that you are a regular on a payday loan site, it might be time to take a cold hard look at your budget.