Payday loan sharks have trapped an increasing number of Brits into unmanageable debts and new research has revealed that this problem is increasingly getting worse.
In fact, a new report from the charity StepChange showed that the number of people seeking relief from payday lenders has shot up by 82 per cent.
Worryingly most of those vulnerable people seeking help had racked up thousands of pounds worth of debt after taking out more than one loan.
According to StepChange, people seeking advice in 2013 held an average of three payday loans, but at least 13,800 had five or more. The average debt was £1,647, significantly more than the average person’s monthly income of £1,381.
Many people make the mistake of taking out a payday loan believing that it is “easy money”.
However, payday loan companies are little more than legalised loan sharks that prey on vulnerable and low-income people and trap them into a cycle of debt that they cannot get rid of.
Many firms such as Wonga charge annual percentage rates (APR) of 4214%. To put it in layman’s terms and get an idea of just how quickly debt can balloon out of control, if you took out a loan of £3000 at 20 per cent APR (way below the average) and made the minimum repayment of two per cent or £5 per month, it would take you a whopping 90 years to pay it all back.
That is just at 20 per cent APR. Not at 4214% which was correct at the time this story went to print.
Now it is worth noting that the Financial Conduct Authority (FCA) assumes responsibility for the regulation of consumer credit in April.
Mike O’Connor, Chief Executive of StepChange Debt Charity, said that he hopes the FCA will address some of these issues.
He added: “The widespread harm and misery caused by payday loans continue unabated. The industry has failed to address the problems causing untold misery and damage to financially vulnerable consumers across the UK”.
“We hope the FCA’s proposals will address some of the areas of consumer detriment, but on issues such as affordability checking, rollover and repeat borrowing, there is an urgent need for even more radical reform”.
Unfortunately that seems unlikely, when you consider the corporate interests in maintaining high debt levels.
In fact, the StepChange charity highlighted the case of one man whose original £200 debt grew to £1,851 in just three months, thanks to inflated interest rates.
And this highlights an important problem. Most people simply do not realise just how rapidly their debts can run into the thousands before they take out a loan.
Fewer people realise that payday loan firms such as Wonga have previously advised the government on how to deal with consumer debt in the UK.
This essentially means that the government is working alongside those very companies who help to trap people into debt in the first place.
Further research conducted by YouGov for StepChange Debt Charity found that at least 26.3 million people had been offered high-interest credit such as payday loans via unsolicited marketing calls or texts.
These are often taken up by vulnerable, or desperate people who are uneducated about the high costs of loans.
And in most schools across the UK, financial management is not part of the curriculum.
Therefore, if you are struggling with money problems, avoid payday loan companies at all costs. It is better to speak to an independent charity or financial advisor who will offer help and advice for free and advise you on ways that you can make your budget go further.
> Or credit unions.
Source – Akashic Times, 28 Feb 2014