By Francesca James
The pressures of Christmas spending will drive 8% of UK adults into taking out a payday loan, according to new research by insolvency trade body, R3.
Louise Brittain, R3 Council member says:
“I am worried that so many individuals are intending to take a payday loan to cover the cost of Christmas. I would urge people to think again before taking out a high interest loan to pay for presents, partying or luxury food.
If used in the right way, to fill a genuine one-off gap in finances, a payday loan does have a place. I would urge anyone considering a payday loan to cover Christmas to think of alternatives, as in the old days, that do not come with a hefty price tag.
“My concern is that a significant proportion of these individuals will not be able to pay off the loan in time — meaning they will need to take out another one or roll it over and could end up facing high penalty charges. We know from research last year that one in three of those who took a payday loan couldn’t pay off the first loan so had to take out another one.
“Payday loans are increasingly being taken as individuals are turned down for mainstream credit from their banks or credit card providers.”
These findings come at a time when the Government has recently announced it is considering a cap on interest rate charges, as an additional clause to the Financial Services Bill. Since this time a year ago, there has been approximately a 50% increase on the number of GB adults who say they are likely to ‘seek a payday loan in the next six months’, up from 3.5 million individuals twelve months ago to 5 million today.
Louise Brittain concludes:
“Debt has been normalised, attributable in part, to the clever marketing campaigns of the big payday lenders. These loan companies operate glossy websites and even sponsor football teams and are capitalising on a generational shift in attitudes towards saving and debt.
“I would urge those considering a payday to be sure they can pay it back on time and in full and if not consider all the options from careful budgeting all the way to statutory debt solutions such as an IVA or bankruptcy. Above all, seek professional advice rather than automatically taking another loan.”