Editor: It is the opinion of Your Family Finances, that payday loans should be avoided at all costs. This article, however, does give some perspective and shows what is being done in the UK to make them more responsible.
R3 Survey Reveals Shocking Statistics on Short Term Payday Loans
Payday loans have been getting a lot of media coverage lately and the latest report suggests that nearly 500,000 adults will be taking out a payday loan this Christmas, in London alone!
The research by R3, who represent lawyers and accountants that specialize in advice on insolvency, showed as much as 23% of adults in the London area will take out a payday loan within the next six months. This is actually nearly double the rate shown for the rest of the UK.
There are a number of questions and conclusions that need to be made based on the estimate derived from the survey of nearly 1,000 adults by R3.
- How representative of the general London or UK population was the sample used by R3?
- Was the question correctly defined to focus on payday loans or did it cover all types of borrowing?
- Which age and population group did R3 include in the survey?
There are a few important issues being raised by the diverse media coverage of the short term payday loan sector. The main news has been the ‘caps’ being placed on payday loan interest rates and charges/fees by including a number of amendments to the Financial Services Bill that is getting its third hearing in the House of Lords. This is mainly good news for the sector, but a number of the top payday loan lenders have spoken of the possibility that the rogue lenders being targeted by the changes will actually move offshore thus escaping the legislation. The other problem with the recent intense media coverage has been the misinformation that has propagated in the mainstream media about payday loans. Others even suggest that the online media reports have attempted to ‘piggy back’ on the payday loan ‘success’ story as a means of cheap SEO for their online papers or news channels.
Most of the short term payday lenders covered by Gimmedosh use strict criteria when accepting applications online or in the high street. The most important controls they use are confirming the borrower’s age, residency, employment status and UK bank account. Some even perform a credit check on the borrower. So, this should indicate that some of the media reports about payday loans and how they get ‘vulnerable’ people into further debt should in fact be directed at the ‘loan shark’ end of the high cost high risk short term lending sector, who tend to be door step operators with very sharp practices for lending at very high interest rates and suspect collection methods and penalty charges. The main payday loan companies are responsible in their lending and have had many repeat customers who don’t want to use the mainstream finance providers like the big banks or credit card companies.
It is true that many people will have to borrow to make ends meet at this time of the year, but this isn’t anything new, as borrowings on credit cards, overdrafts and unsecured loans have always risen sharply after Christmas and the New Year holidays. The payday loan sector has slowly taken an increasing share of the mainstream unsecured loans market, as more people have come to enjoy the benefits of short term lending with a hassle free and fast application processing.
Check Out:
- Using Personal Loans to Save Money
- How to Hurt Your Credit Score
- Payday Loans: Debt Trap or White Knight?
- Choosing Between Secured and Unsecured Loans
- Which Type of Loan is Best?
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