Payday loans – for better or for worse?

A recently published ‘Which?’ report suggests that one in two payday loan users cannot afford to repay the credit they have borrowed. The report also concludes, even more worryingly, that almost one in three of payday loan users have taken out credit, knowing before they did so that they would not be able to pay it back. This can be construed as evidence of the vulnerability of those borrowers, who have difficulty in managing their finances. These are also likely to be people who are inclined to borrow without thinking and can be preyed upon and persuaded to borrow rather than be encouraged to seek out advice and support.

The research shows that in the last 12 months, almost three out of five borrowers have missed a payday loan payment and have incurred additional charges. Additionally, one in five say they have been hit with unexpected charges.  Seven out of ten payday loan users, responding to the survey, say they have regretted taking out a loan or other credit product in the last year and this has led to one in four seeking debt advice in the last 12 months. Such advice would surely be better if sought out before any payday loan debt is incurred!

Which? Executive Director, Richard Lloyd, commented:

“Payday loans are leaving many people caught in a spiral of debt and taking out more loans just to get by. That’s when they’re hit by excessive penalty charges and roll over fees.”

Which? found that payday loans are being used to pay for rent and regular household bills much more than credit cards, which tend to be reserved for emergencies and more extravagant purchases such as holidays. When however, there is evidence that buying food and fuel are the top items that people are using both forms of credit for, this points to the malaise of poverty now evidenced in the UK. Is this of significance in the wider context of us nationally being encouraged to increase retail sales and spend our way out of recession?!