Payday loans aren’t all bad?

7 August 2013

stock_payday_loansPayday lenders have received a pretty bad press recently, with even the fluffy Citizen’s Advice sinking their claws in. But as some people have pointed out, notably Wonga founder Errol Damelin, these firms are providing a service that (some) people actually want. So someone decided to find out what payday loan users themselves thought about it all.

The uSwitch survey found that almost half (49%) of payday loanees were pleased with their experience, with 30% of customers saying they would take one out again, and 19% saying the short-term loan helped solve their financial problems.

Some commentators have described these findings as a boost to the payday loan industry, but the figures actually show that 51% of people using a service are not happy with it. Would any other industry get away with running a business on such poor satisfaction levels?

The reason, according to uSwitch’s personal finance expert Michael Ossei, is that consumers are caught between the rock of escalating living costs (up 25% in five years) and the hard place of being refused traditional lending

“The need for short-term loans is escalating and those most in need of money, often with poor credit ratings, have been turned away from the banks and left to feel they have no other option,” he said.

The uSwitch’s survey also revealed that 29% of customers regret taking out a payday loan in the first place and that 18% said a payday loan made their financial worries worse.

The payday loan industry is already under OFT investigation over shoddy practices and around  15 payday lenders have left the market after warnings from the OFT, which referred the sector to the Competition Commission in June. The OFT described the payday market as the most "non-compliant" it had ever seen.

So what do you think? Are payday lenders merely filling a gap in the market or should something be done to force banks to provide emergency funding for those in need? Should  we bother trying to help the people taking out these loans or do they need to learn for themselves? Will the Government’s proposed new financial education programme prevent a new generation of people getting sucked into the payday loan trap?

TOPICS:   Consumer Advice   Debt   Loans


  • Dick
    > Would any other industry get away with running a business on such poor satisfaction levels? I think you have to ask why they are not happy with it too, not just are they (un)happy with it. No doubt it is due to the high costs for credit. But why do they use payday loads? Presumably these people are also unhappy with high street and internet banks too, since they refuse them loans completely. So for this demographic, I would imagine all banks, all gas and electricity firms, and any company that charges them more for a service than someone that can pay (regularly) for their service.
  • badger
    Did 51% dislike using the companies, or dislike needing to use them?
  • Alexis
    QuickQuid: "Representative example: Borrow £1200 over 10 months. Interest 300% per annum. Total amount repayable £2,831.34. Total cost of credit £1,631.34, comprising solely of interest. 1362% APR Representative." This is the kind of shit that should be banned. Just cap the interest rates. There are a lot of stupid people out there and you might think if you're daft enough to fall for it, it's your own fault. But if some clown is getting fleeced by these kind of loans they're not paying their council tax and society as a whole suffers.
  • Grammar N.
    If you capped the interest rates the market would disappear. The high rates are reflective of the risk and the comparatively high level of default that the typical customer represents. If this risk is not adequately covered by the interest the loans will no longer be offered, either that or pawn lending will take off even more as that is (relatively) secure for the lenders.
  • Chewbacca
    Look, you fucking cretins. As I have stated many, MANY times previously, they fill a gap in the market. Want a short term loan from your bank? Forget it. Your friendly local loan shark? Broken legs if you don't pay him back an arbitrary amount in an arbitrary period of time. Or, pawn your shit and hope you can get it back sometime. So, gap in the market. Best choice from not-very-many-options. You fucking morons. Oh, and credit unions.
  • Chewbacca
    Oh, and lulz at rick (1st post) for his "payday loads". All over his dead mums face. Or something. Foxes. Erb. Lolbiscuits. Tennant's. Fucking morons.
  • Chewbie
    Flex wit da erb fox
  • Kevin
    Well said Badger, what does dislike mean? Having to pay for a service? Having to borrow atall, feeling bad about the social stigma if people found out you were a Wonga customer? It's like bookies, Tesco Expresses or Primarks on the highstreet. There is a demand and they never shut from a lack of customers. Alexis. Most loans are for a month or less. The APR legally has to be included even if they only lent money out for a week. The APR mean nothing.
  • Worried S.
    The main problem with PayDay loan companies is that when a loanee defaults at the end of the month, the loan companies tend to immediately and automatically sanction another "loan" to pay of the first loan with interest - so now the poor sap who couldn't pay the first loan back now has a larger loan to pay back at the end of next month at the high APR ( and so on, month on month ). Anyone defaulting should immediately be put on to some sort of payment plan to pay back the first loan - not loaned even more money. The government should also put adverts for credit unions on the telly so they are at least as visible as the zillion PayDay loan companies. That would divert some of the vulnerable into a more sane form of lending than taking out a PayDay loan. The credit unions should also band together to offer an ( easier ) web service - I think the reason many people end up using PayDay loan companies is the process is very quick and streamlined on the web with little "interrogation." If the credit unions could make their process similar ( upto a point ) then again maybe more people would be tempted away from PayDay loaners.
  • Alexis
    @ Alexis. Most loans are for a month or less. The APR legally has to be included even if they only lent money out for a week. The APR mean nothing. Exactly. Which is why I posted the QuickQuid example. Everyone ranting above is missing the point. There is a difference between a £250 4 week loan and the ones that rip people off over 12 or 36 months. Yes there is a gap in the market, but then leachers jump on the bandwagon with ideas involving guarantors and taking your car off you. And that's before rollovers and misselling. The market needs regulation. Sitting back and saying it fulfills a need or it's better than Johnny Kneecaps coming round is shortsighted.
  • Realist
    All of you really do not have any sort of clue, for those who need credit yet cant get it from your bank who are you going to go to if these guys werent there, maybe our f*cked up benefits scheme could help them out at the price of the tax payer? You all seem to sum it up as if anyone is going to borrow this money over 10-12 months, be realistic here, no one ever will. they borrow the money for less than a month to help them pay the bills that they should have saved for in the first place. This all comes down to supply and demand, if i was to lend somoene i didnt know money, i certainly wouldnt only charge them 1-5% interest to borrow it for a month, would you??
  • Are H.
    [...] these loans targeted to exploit, they shouldn’t be if underwritten properly, meaning the lender makes sure the borrow can afford to repay the [...]

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