In a bit of an unsuprising find – the number of people taking out payday loans, in the UK, has quadrupled over the last four years, according to a new report by Consumer Focus.
In its study – ‘Keeping the Plates Spinning’ – Consumer Focus estimates that the number of people using payday loans has increased fourfold since 2006 to 1.2 million people, borrowing a combined £1.2 billion. Charges typically range from £13-£18 interest for every £100 borrowed, but can be as high as £30 per £100 for some online providers. This can generate APRs in the region of 1000% to 2000% given the short-term nature of these loans.
The research estimates that payday loan borrowers are taking out an average of 3.5 loans a year. Consumer Focus is urging a precautionary approach from industry and regulators to stop borrowers becoming dependent on this form of high interest credit. It says banks need to offer affordable short-term loans as alternatives, as well as recommending stronger safeguards to protect consumers from spiralling payday loan debts.
The research estimated that last year, the average size of a payday loan was an estimated £294 and two-thirds of payday loan borrowers have a household income of less than £25,000.
The study looked at payday lending in the UK and how it compares to the US, where it is a more established form of high-cost credit. Concern about payday loans has led to a number of US states banning them, although there is a lack of conclusive evidence that doing this necessarily helps consumers, Consumer Focus claims.
It is thought that banning payday loans will only encourages Loan Sharks and that if someone wants to borrow money they will find someone who will lend at whatever rates to gain a proft.
