Payday loans ‘worsen situation’ for 1 in 3

payday loan debt

payday loan debtDespite well-publicised warnings over the perils of payday loans it appears an "alarming" amount of people have become trapped in debt as a result of late payment charges.

Payday loans are quick-fix packages, so-called as they are often seen as a fund to tide us over until our next pay cheques come in, but astronomical rates of APR can make repayments a nightmare for many struggling families.

The latest report from consumer watchdog Which? does not make for very pleasant reading. It claims that almost two thirds of people who take out payday loans are worryingly having to use them for household essentials such as bills, petrol and even nappies.

A quarter claim to have been taken by surprise with hidden charges, such as extortionate fees - while one in five have been left unable to pay back their loan within the specified timeframe.

A third of those who have opted to utilise a payday loan have admitted that they are now in greater financial difficulty as a direct result of it.

Which? looked into the practices of 34 payday loan companies, finding that late payment charges can rise to as much as £150 for falling 10 days behind. In addition, the majority of firms failed to clearly set out their charges for defaulting.

According to Which? executive director Richard Lloyd: "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.

"At its worst, this booming £2 billion industry can be seriously bad news for borrowers who are struggling to afford food or pay their bills. People are getting caught up in a debt trap, whacked with high penalty charges, or encouraged to roll over payments and take out more loans at inflated rates."