Millions of Britons are likely to take out a loan that has a high interest rate attached to it over the next six months in order to make it financially until payday, according to a group of insolvency experts.
The group, R3, stated that it came up with this figure after interviewing 2,000 people. However, Consumer Finance Association member John Lamidey, who works with payday loan businesses, disputes the figures that have been released. In the middle is Downing Street which is attempting to bring some type of industry code into being.
According to the figures from R3, 45% of those in the survey struggled to make their finances last until their payday and another 60% were worried about how much debt they held under their name. The group went on to say that the survey shows that money concerns are as high as they have ever seen and that this aligns with the fact that consumer bodies are now asking that payday loans be better regulated to stop people from making poor decisions due to a lack of understanding.
Payday loans are a large group of short term, small, unsecured loans that are designed to help people stretch out their finances until they reach their payday, but at the cost of a high interest rate that forces them to pay back a larger amount than they borrowed right away. In fact, the payday loans have become so popular that payday companies are now worth about two billion pounds a year according to Andrew Hosken, the BBC correspondent.
Sometimes, the loan can be cheaper than an overdraft or credit card penalty if it is paid promptly back on the next payday, however, if the loans are not paid off right away, with interest rates that are over 4000%, debts can start to increase rapidly and before long get out of control. One woman stated that she borrowed £300 and paid back small amounts and without realising it, even with regular payments, discovered she owed £720. It is this very cycle that the payday loan people count on.