Before Christmas, there were reports that many UK residents were using payday loans to fund holiday spending. A post-holiday study by lender Speedeloans revealed that three times more people used these no credit check loans during the 2011 holiday period than during the 2010 season.
Despite what seems like an alarming increase in the number of loans, this lender reported that its holiday customers had one-third less debt than during 2010.
Shelter Scotland commissioned YouGov to conduct a survey in early January. The results showed that 936,000 UK citizens had used a payday loan during the previous 12 months. According to personal debt expert James Falla, several factors caused the higher number of loans, including more pre-holiday television advertisements.
This fast cash was used by many people to fund holiday gift giving and entertainment.
Though the holidays are over, Brits are continuing to use this financing. New research indicates that more of them are using the cash to pay daily expenses. Consumer Finance Association Chief Executive John Lamidey commented that it was “simply impossible” to use a short-term loan like this to pay the mortgage.
Since the loan term is usually no longer than a month, it is not feasible to use for mortgage or rent payments. Consumers who find themselves in arrears with their mortgage or rent should avoid this financing and instead seek advice from a debt agency.
Irvine MSP Margaret Burgess is one of the politicians that consider the loan trends worrying. She recently demanded that the UK government take action against payday lenders immediately due to their high interest rates.
Ms. Burgess is a former manager of the Citizens Advice Bureau and recently led a Scottish Parliament debate regarding her motion on damage inflicted upon local residents by payday lenders.
Previously, Ms. Burgess had received bi-partisan support for this motion. In her presentation to Scottish Parliament members, she said that many UK consumers view a payday loan as “an easy way to access money.”
The borrower authorizes the lender to automatically withdraw the loan principal plus interest on the next payday. When consumers are unable to repay the loan in full, it rolls over, increasing the interest and other costs. Many people find themselves taking an additional loan to repay the first one, digging themselves into debt.
Ms. Burgess said that payday lenders target vulnerable citizens earning low wages. She characterized this as “usury and exploitation.” She is calling for immediate regulation of the industry to protect citizens from high loans APR and debt they cannot manage.
At the same time, she is requesting that citizens have access to affordable credit and reputable advice regarding money management.
The Irvine MSP believes that local credit unions exhibit these qualities. She provided the 1st Alliance Credit Union as an example, saying that the institution encourages members to save and includes emergency loans and low-cost credit in its offerings.
It also collaborates with local money advice agencies and authorities regarding mortgage and rent arrears. In her opinion, this is the type of financial support the UK government should promote.