As global financial troubles continue, more UK residents are turning to payday loans to cover expenses. In the past, the typical payday lending customer earned a low income and was desperate for fast, no credit check loans. Today, these lenders are catering to more people who earn a decent income but need small loans with few questions asked.
They are flocking to websites that offer short-term financing of between £100 and £1,500.
The online payday lending industry has exploded in Britain, offering consumers a simple online application and almost instant approval. Though many lenders are very reputable, some are considered predatory and are now being punished by the government.
Consumers need protection from these tricksters and the government is more than willing to provide it. Eventually, only the most legitimate lenders will populate this market.
Institutions like PriceWaterhouseCoopers agree that credit card advances and loans bank provided are difficult to get due to European economic conditions. Payday lending is fast becoming the chosen alternative and this industry is currently the only consumer credit market sector experiencing growth.
While payday loans are faster and easier to obtain, many people criticize the high loans APR, which can reach thousands of percent. Since this financing is not intended to last for a few months, let alone a year, industry supporters comment that using APR as a measurement of loan cost is misleading.
According to data released by the UK Consumer Credit Counseling Service in March, the number of customers with payday loan debts has grown six-fold since 2009, when 2.6 percent of CCCS customers used this financing. Consumer Finance Association chief executive David Lamidey reported that consumers are focusing on repaying credit card debt.
Worries about future income streams have led people to free themselves from long-term debt. These individuals are taking advantage of the ability to borrow only the money they need over the short-term.
Though payday financing may not be the loans cheapest available, they are not too expensive if they are repaid within the initial term, usually a maximum of one month. However, many borrowers with low incomes are finding this difficult to do. When they rollover their loan to another term, they accrue interest. Those who make late payments are socked with charges that increase their balance.
The Debt Support Trust reports that UK consumers owe £1,200, on average. Forty percent are paying their basic living expenses with borrowed money. Most payday loan customers report borrowing from one payday lender to repay another. The average customer has four no credit check loans from different lenders.
The way this financing is being used, not the availability of it, seems to be the problem.
Brits in debt should examine their expenses and income. There may be easy ways to reduce living costs so they can repay debts and decrease their dependence on loans. Increasing income by temporarily taking a second job to repay debts may be another option.
Consumers should never find themselves dependent on loans to make ends meet on a monthly basis.