Demand For Payday Loans Soars

The demand for payday loans has increased by 58 per cent since the beginning of May as the rising costs of living creates difficulties for consumers.

The number of requests for payday loans at the moneysupermarket.com web site has more than doubled in May, compared to April as consumers wrestle with rising food and petrol costs.

Payday loans are designed to be short term to allow the borrower to pay pressing and important bills such as rent or mortgages due before the next pay cheque arrives.

The amounts offered to consumers by payday loan companies usually range from £100 to £300, but this amount can go up to £1,000 in some cases. If an application is successful, money can be transferred into the borrowers account on the same day.

However due to their short term nature pay day loans carry extremely high interest rates, some as much as 2,000 per cent when converted to an annual percentage rate (APR).

These rates vary enormously, but typically, customers borrowing £100 will have to pay back around £125 and the term of the loan is usually set at 31 days – a £300 loan is likely to cost them around £375.

The financial pressure of the bank holiday, the Royal Wedding and their proximity to the Easter holidays has strained family finances to breaking point, forcing many to turn to loans to tide them over.

This looks set to continue, as Tim Moss, head of loans and debt at moneysupermarket.com explains:

“These products act as a barometer, giving a unique insight into the state of the nation’s finances, and as people continue to feel the pinch, we can expect to see the popularity of these products continue to increase.”

“However, the use of payday loans comes with a huge caveat. There is a real danger that customers could fall into a spiral of debt where they have to take out a loan each month just to make ends meets.

“Borrowing £100 one month means paying back £125 the next and anyone struggling to stay out of the red could find that taking out a pay day loan ultimately makes the problem worse. Payday loans are not suitable for customers looking for longer term credit or unable to pay off the debt within a few days.”, he warned.

If you need to rely on this form of borrowing regularly, then you should seek free debt advice from a charity such as the CCCS who can work with you to tackle your problems and slowly improve your personal finances.