Number of payday loan users in UK quadruples

More than a million people in the UK have taken out a payday loan, borrowing £1.2bn in total, according to an alarming new report by Consumer Focus.

Consumers are increasingly turning to expensive payday loans from specialist lenders, as high street banks refuse to give customers credit. Research by the consumer watchdog reveals that people who are unable to get a bank loan are now turning to short-term lenders that offer to approve loans within minutes. Consumer Focus estimates that payday loan borrowers are taking out an average of 3.5 loans a year. Other key findings from the study show:

• Last year, the average size of a payday loan was an estimated £294
• An estimated two thirds of payday loan borrowers have a household income of less than £25,000
• Payday loan users tend to be young and single. It is estimated that over half of borrowers are under the age of 35 and 60 per cent are not married or cohabiting

How expensive are Payday Loans?
Charges typically range from £13 to £18 interest for every £100 borrowed, but can be as high as £30 per £100 for some online providers. This can generate ‘eye-watering’ APRs in the region of 1000% to 2000%. The danger for consumers comes when they take out a loan and cannot repay it the next month. If they defer payments or take out repeat loans, charges can quickly spiral out of control. People can find themselves dependent on more loans and sink into increasing debt.

So should Payday Loans be banned?
Despite the expense and inherent dangers of payday loans, they provide a service which many people really do need. 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.”

The demand for payday loans is expected to grow by a further 45% in the near future. Consumer Focus advises that consumers should consider all of their credit options before making decisions on which type of loan is best for them, and to seek professional advice if they are concerned about being in debt.