According to a new survey published this week by insolvency company R3, around 5million people are expected to take out short term so called payday loans to tide them over this Christmas. The survey also showed that one in ten people are forced to pay back these loans rather than use their money to buy food, and a whopping one in three payday loans are actually taken out to pay previous loans. However, a report revealed in the Independent yesterday suggested that some payday loan companies are targeting the most vulnerable members of the public with aggressive ad campaigns and extortionate rates of APR. Many new websites have sprung up in the last few weeks that are specifically aimed towards hard up families who might be struggling to find the extra money needed at this time of year.
David Fisher, Director of Credit, at the Office of Fair Trading, said: “We expect payday firms to be responsible, making sure they only lend to those who are able to repay the debt. We would be particularly concerned if payday lenders were deliberately targeting vulnerable consumers.” Whilst Co-operative Labour MP Stella Creasey, who has campaigned against what she calls legal loan sharks, said: “The public know these loans are toxic, but what choice do they have when they’re trying to keep a roof above their heads or pay to get to work? I warned ministers in 2010 that they were facing a debt crisis if they didn’t stop these companies exploiting our lax credit regulation. In two years they have done nothing and millions more are now facing a debt-laden Christmas and New Year.”
Certain charities have spoken out about their concerns on these short term loans and their effect on vulnerable families. Neera Sharma, assistant director of policy at children’s charity Barnardo’s said: “The families we work with struggle more at Christmas. They’re on very tight incomes and are forced to get by on just £12 a day. If they’re encouraged to take out a payday loan, they very quickly end up on a cycle of debt.” And it appears there has been a steep rise in people seeking help with problems associated with payday loans as Una Farrell of the Step Change Debt Charity advises: “While payday loans are an expensive form of credit to begin with, that is only part of the problem,” she said. “Expensive roll-over charges mean that they can quickly spiral into unmanageable debt if a borrower cannot repay what they owe at the end of the month.” She adds: “The issue of multiple lending needs to be addressed to prevent people falling into these destructive debt cycles,”
Russell Hamblin-Boone, who is the chief executive of the Consumer Finance Association, which represents some of the leading short-term lenders, said: “We recently issued advice to consumer considering taking out a payday loan to fund their festivities. In essence it said, if you can’t afford to borrow, don’t take out a loan. Sound advice indeed.” All very well but if these are the lenders who are targeting vulnerable families, there is a temptation to take out the short term loan and solve the immediate problem facing them without realising the longer financial implications further down the road.
Here at Shoppersbase we recommend one short term lender – Wonga.com. In our opinion, they are the most responsible short term payday lender, they have policies in place to help you if you experience difficulties in repaying their loan, the interest on their loans are reasonable and their admin charges are the cheapest we could find.