According to research by watchdog Consumer Focus, the number of people taking out a payday loan has quadrupled in the last 4 years.
The consumer group said 1.2 million people are now taking out a payday loan every year – borrowing more than £1 billion.
Payday loans are becoming more popular and are seen as attractive – particularly to those who have been finding it hard to secure finance.
However, it is recommended that these types of loans are best reserved as a product of last resort, since loan interest rates offered may not be competitive by comparison to high street rates.
If the money is paid back promptly on the next pay day, this type of lending can be cheaper than paying an unauthorised overdraft or a credit card charge.
However, if the loans are rolled over, the debt can quickly increase sharply.
Loan charges for these types of loans, on average, range from £13 to £18 interest for every £100 borrowed, however, they can rise as high as £30 per £100 for some online providers.
Some companies, though, are charging interest rates of more than 2,500% a year and, as a result, the watchdog is urging the industry to bring in more protection for vulnerable borrowers.
Sarah Brooks, head of financial services at Consumer Focus, comments: ”Payday loans are a valid form of credit and it’s much better for people to take one out rather than go to a loan shark.
“But we do think there needs to be a limit on the number of loans people take out and how many loans they are able to roll over,” she explained.
Discuss this in the Finance Markets forums
Story link: Research shows 1.2m taking out payday loan each year
Related financial stories to: Research shows 1.2m taking out payday loan each year:
