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Payday loan users have quadrupled over the last four years indicating a need for banks to offer more affordable short-term loans as alternatives.
The report by Consumer Focus found 1.2 million people borrow a combined £1.2 billion with charges typically ranging from £13-18 per £100 borrowed.
Further in-depth research showed despite the high interest rates consumers like payday loans because they are quick, convenient and easy to understand how much it will cost to repay.
Consumer Focus however suggest companies specialising in short term loans should be forced to carry our checks to ensure people can afford repayments.
“With the credit crunch, demand for short term borrowing has significantly increased,” said Marie Burton, Consumer Focus financial services specialist.
An estimated two thirds of payday loan borrowers have a household income of less than £25,000 and loan borrowers are taking out an average of 3.5 loans a year.
Short Term Payday Loans“More and more Brits are discovering that compared to many other options, taking out a payday loan is a fast and convenient way to gain affordable credit,” commented Payday Bank’s Ohad Hessel.
“If a lender judges that the customer can repay a loan then they will probably happily lend them money, whether it is their first application of the year or their sixth.”
An alternative avenue for affordable credit from social lenders and credit unions is urged by Consumer Focus, but the plans have been deemed unrealistic by those in the industry.
“While promoting credit unions is a good idea in theory, we don’t think credit unions are capable of dealing with the risk involved in lending to customers with a high risk of defaulting payments,” concluded Hessel.
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