UK debt: 3.5 million say they will be forced to take out “payday” loans at very high interest rates
Drowning In Debt: 4000% Interest Rate Warning As 3.5 Million Say They Will Be Compelled To Take Payday Loans In Next 6 Months
- Almost half of the population struggles to make it at the end of the month
- Meanwhile, 62% of 25-44 year olds reported financial hardship before payday
Three and a half million adults plan to take out an exorbitant payday loan over the next six months as nearly half the population struggles to make ends meet, it has been revealed.
The number of people who run out of money before the end of the month has increased by seven percentage points from the same period last year.
Payday loan companies are now worth £ 2 billion a year, with some lenders charging interest rates of over 4,000%.
Struggle: Number of people running out of money before payday has increased by seven percentage points from same period last year
The loans are small, short-term, and unsecured, and target those who are struggling at the end of the month.
If the borrowed amount is repaid on the agreed day, then it may be cheaper than an unauthorized overdraft or credit card charge.
But if the loans – with rates typically around the 1,000 percent APR mark – are renewed, debts can escalate quickly. A few APR can reach 4,000 percent, BBC said.
A payday loan client – who did not want to be named – contacted This is Money from the Daily Mail after facing a £ 1,039 repayment after failing to repay a £ 300 loan.
Among those 25-44 years old, 62 percent reported financial difficulties before payday, according to the insolvency professional body R3.
Credit card repayments have been cited as the number one reason for needing a loan, research shows, with mortgage payments also being responsible.
This is because only a fifth of adults believe their personal financial situation will improve over the next six months.
Frances Coulson, President of R3, said: “Fighting for ‘payday’ is a sign that all is not well with their finances and I fear that so many under 45 are in that group. .
Desperate: Table shows 68% of those who took out a payday loan couldn’t get credit elsewhere while 60% regret the decision
Worried: The number of people concerned about their debt load has risen from 40% in July last year to 60% this year
“Payday loans are not the best way to solve this problem, in fact we know that many who take them out find them to be a negative experience.”
Of the 67 people sampled who had taken out a payday loan, 60% regret this decision, while 48% believe that the loan has worsened their financial situation.
Only 13% think their payday loan has had a positive impact on their finances.
People in different parts of Britain are more concerned about debt levels, with people in the North East being much more concerned than those in the East.
Meanwhile, the number of people with no savings at all has risen sharply, from 19% last quarter to 27% this quarter.
PERMANENT JOB HOLIDAYS HAVE A NEW LOW
Placements of permanent staff fell for the second consecutive month in November, highlighting a “rapidly declining” job market, employment offices reported.
Research conducted with 400 recruitment and employment companies showed a two-year low in permanent vacancies, but an increase in jobs for temporary or contract staff.
Staff availability to fill positions continued to increase over the past month, the Confederation for Recruitment and Employment said.
Managing Director Kevin Green said his study highlighted a “rapidly declining” job market, adding: “
“This is bad news for the unemployed and therefore we expect unemployment to rise in December and January. On a positive note, however, the report shows that temporary staff appointments continue to increase, albeit at a declining pace. ‘
Overall, 40% of the population is currently saving less than usual, up from 27% a year ago.
Ms Coulson added, “We seem to be declining in terms of confidence in personal finances, yet people are saving less.
“Credit card payments are still the number one reason people struggle with ‘payday’, with mortgage payments and spending on non-essential items coming in second.
“Our card frenzy now skews our financial priorities, with credit card payments taking the money we have left.
“If you regularly struggle to pay your salary, seeking financial advice should be a priority. ”
Meanwhile, R3 claims that one in six people are now classified as a “zombie” debtor because they only pay the interest on their debt and not the debt itself.
It also recorded the biggest worry on record over debt levels with 67% of Londoners and 70% of North Easters now worried about their cash flow.
Overall, three in five people worry about what they owe, up 21 percentage points from the same time last year and more than three-quarters of 25-34 year olds are particularly concerned about their level of debt.
Financial site moneysupermarket.com said inquiries about payday loans had “continued to grow” in recent months, with a 23% increase in November from the previous month.
Official figures released last month showed bankruptcies hit their lowest level since 2004, as fewer people were declared insolvent in the third quarter of this year.
But analysts cautioned that the numbers did not give a full picture of those heavily in debt. The number of Debt Relief Orders and Individual Voluntary Agreements (IVAs) has increased year on year.
Consumer Affairs Minister Edward Davey said: “Payday loans should never be used more than as a short-term financial solution, not a long-term solution to financial difficulties. People should think very carefully before taking out any of these loans and consider affordable alternatives such as their local credit union.
“We know there are particular concerns about payday loans and a real lack of transparency on how these loans work. That is why we have entered into discussions with the industry to ensure that codes of practice contain real and improved protections for consumers and I have written to the major trade associations representing payday lenders to stress the importance of this work.
“We also commissioned the Personal Finance Research Center at the University of Bristol to conduct independent research on the impact of the introduction of a floating cap on the total cost of credit that can be charged. This will include payday loans.
“We are committed to responsible lending and will continue to work with industry to strengthen consumer protection where necessary, especially for the most vulnerable. “
GROWING PRESENCE OF PAYLOAD LENDERS
Whether viewed as the bane of the credit world or as a vital lifeline for customers when their banks fail to deliver, short-term credit companies are provoking fierce backlash as household budgets shrink. more and more tight.
Their presence in the UK market has grown due to an influx of lenders from the US, where restrictions are seen to be more stringent than in the UK.
The Office of Fair Trading (OFT) plans to conduct a review next year to ensure companies are complying with responsible lending rules, but watchdog Consumer Focus believes the regulations are not enough strict and fear that many will be tempted by the short term. correct as Christmas approaches.
Sarah Brooks, Director of Financial Services at Consumer Focus, said: “These are tough times and as Christmas approaches, many will be tempted by a payday loan despite APRs above 1000%.
“Considering that this is now a billion pound industry, regulations in this area are not strict enough and much remains to be done to prevent consumers from being caught in growing debt. . “
The group calls for the number of loans taken to be limited to five per household each year, as companies offering short-term loans are forced to carry out more stringent controls.
Ms Brooks said: “This industry has had many opportunities for reform but has failed to make the changes necessary to protect consumers from debt traps.
“We are also concerned about the marketing, sales and debt collection practices of some payday loan companies.
“There is evidence that a number of lenders are breaking the rules and our concern is for the vulnerable consumers who suffer as a result.”
But according to the Consumer Finance Association (CFA), which represents companies offering short-term loans, these loans are designed for those with bank accounts, jobs and disposable income, rather than those who will struggle to repay them. .
The trade association said half of payday loan borrowers earn more than £ 19,200 and three-quarters earn more than £ 15,000.
The CFA said a payday loan would typically cost between £ 9.95 and £ 30 for every £ 100 borrowed over a 30-day period, depending on the lender, and application denial rates can be as high as 90%.
He argues that unlike banks, which can sometimes include hidden charges on overdrafts and credit cards, the total costs are made clear to the customer up front so they know exactly what they will pay.