Will you be taking out a Payday loan sometime soon?

7 December 2011

penniesSo. Yesterday we warned you against spending unagreed overdraft money, as , regardless of whether you value the APR calculation or not, the banks were still charging double what a payday lender would charge. Today, an organisation “working with financially troubled individuals and businesses” expressed concern over the “millions of Britons” who are likely to take out a payday loan in the next six months.

Insolvency experts at R3 say the survey reveals money worries at the highest level it has ever recorded and base their claim on interviews with 2,000 people.

The survey found that 60% of respondents were worried about their level of debt, and 45% struggled to make their money last till payday, rising to 62% for 24-44 year olds. One in six are so-called "zombie debtors," who are only able to service the interest on their debts and can never tackle reducing the capital balance.

John Lamidey, of the Consumer Finance Association, which represents payday loan companies, disputed the figures. "Only half the adult population uses credit at all, so you've got to knock that in half. So I'm really sceptical about these figures,” he told the BBC.

"They've extrapolated from a very, very tiny sample. Our experience is that 94% of our customers are totally happy with the product that they're getting, 97% say that the loan is totally transparent and 86% say that they would recommend a friend."

However, Mr Lamidey cannot deny the fact that the payday loan market has expanded rapidly in the last decade.

Lenders typically offer to lend up to £1,000 for up to one month. Applications can be processed quickly and the borrower can often receive the money the same day. However, the ‘quick and easy’credit comes at a cost, typically an APR of between 2,000% and 4,000%. Payday lenders argue that using an APR is misleading, given the loans are never intended to last for an annual period. However, once a payment, or repayment is missed, charges can escalate rapidly, leaving the borrower unable to meet either capital or repayment charges.

In last month’s BIS report on consumer credit, it said that it is aware of an upsurge of concern regarding the rapid increase in the use of payday and other instant lending, and dialogue has already started with the industry on introducing enhanced consumer protection in their codes of practice. Also last month, the Citizens Advice Bureau warned that the number of people running into debt through payday loans has quadrupled in two years.

The Office of Fair Trading said the payday loan industry was worth about £115m in 2004. According to a report by our friends over at Which! that figure was £1.9bn in 2010. Who knows what the final figure for 2011 will be.

So, given that Bitterwallet readers are representative of (some sections) of the population, we thought we'd run a straw poll on the payday loan habits of you lot. Please don't tell us about any of your other habits...

TOPICS:   Debt   Banking   Credit Cards


  • Will L.
    [...] original here: W&#1110&#406&#406 &#1091&#959&#965 b&#1077 taking out a … – Bitterwallet Tags: britons, expressed-concern, financially-troubled, payday-loan, Survey, survey-reveals, [...]
  • Lucas K.
    Dear Mr Wallet, Could you passing on the contact details for anyone in voting the top 3 categories, I have some very interesting business proposal for them. Lucas Kabongo Nigeria.
  • Sicknote
    How about a fifth option. "Am always careful with my finances and would never put myself or my family in the position of needing a pay day loan."
  • Terry
    I have done this twice, through Quidco, because the cashback amount was greater than the interest. I didn't actually need the loan. However the second time, the loan didn't get processed by the site Quidco referred me to, so I never got my cashback. So that's why I wouldn't use them again. The only downside has been the followup texts for about 2 months after the original loan repayment, asking me if I wanted another loan. They even phoned me up and wanted to know why I didn't want another one! I certainly wouldn't do it if I didn't get cashback.
  • officialloanshark
    I was called at work yesterday and called "morally bankrupt" and criticised for "invading her (the person on the other end of the line) privacy" and for what? Leafleting for a paydayloan company. The poll is everso slightly biased though. There should be an option for "Would consider doing so at some point in the future, if my borrowing needs dictated that it was a cheaper option than going into an unauthorised overdraft". If I didn't work for a paydayloan company and didn't have a credit card and an overdraft (and a mortgage and a student loan), I'd consider one. I've had many a bounced direct debit and bank charges (@£25 a time) when I was younger and more free with my money. It has to be a cost/benefit decision. Will I get charged X amount for this and can I make that cheaper? It's actually not that disimilar to shopping around for car insurance or cheaper utility bills. You need a certain line of credit and the bank will charge you for it, payday loan companys will charge you for it also. Go to the cheapest available to you at the time. It IS called PAYDAY lending for a reason. It IS a short term loan. It IS NOT designed to be an alternative to a credit card, or a bank loan, or an overdraft etc.

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