The Dangers of Payday Loans
In spite of the fact that they seem speedy and convenient, taking out a Payday loan can be dangerous due to the extortionate interest rates, which could see you paying back double what you borrow. Sneaky terms and conditions mean that it can be easy for borrowers in a panic to be caught out. What is more, when you take out a payday loan, it will show up on your credit records and could make it more difficult to borrow in the future. It could also make it more difficult for you to purchase a home if you wish to do so in the future.
Those in financial difficulties may be tempted to take out more loans to cover previous loans that they cannot service. Do not ever do so. There is free advice available to help you get out of a debt crisis, and there may be things that you can do to save money and reduce outgoings, or increase income, in order to make ends meet. Do not panic. No matter how bad things seem, there is always a solution… that solution is very unlikely to involve a Payday lender.
What Has Changed in the Payday Loans Market?
Unsecured debt is higher amongst those in the younger age brackets. According to statistics from the PWC, those aged 18-24 have the highest debt to income ratio – their unsecured debt is equal to 100% of their income. Those aged 25-34 have unsecured debt equal to just over half their income. That drops to around a quarter for those aged 35-44, to just over 15% of their income for those aged 45-55, and around 10% for those aged 55 and over.
Of course, only a small proportion of that unsecured borrowing is in the form of pay day loans. More enticing credit card and overdraft deals in more recent years, along with a host of negative press surrounding payday loans, meant that, in the last few years, many payday loans direct lenders chose to leave the market and some collapsed. Low interest rates meant that borrowing was relatively cheap.
In 2011-2012, the payday loan market was worth, according to governmental figures, between £2.0 and £2.2 billion – a staggering rise from what was a figure of an estimated £900 million in 2008-2009. The rise of these products was accompanied by a significant rise in the number of people experiencing severe debt problems as a direct result of using these products. Payday loans were regulated in 2014 after intense negative press regarding these dangerous financial products, and the industry has declined from its pre 2014 peak. In 2015, a cap was introduced on the interest rates that can be charged on short term loans. However, people do still take out short term loans UK, with extortionately high interest rates.
Historically ‘thrived’
The industry has historically thrived with the input of Israeli entrepreneurs and investors – but a huge change in regulation by the Financial Conduct Authority and increase in compensation claims. According to data published at MoneyPug, the website used to find payday loans, The fall in Payday loans in the last few years shows only the firms that offer the most reasonable payday credit options will survive.
However, the last few years have seen a sharp dip in the number of people taking out payday loans, with a lot of financially struggling people choosing to instead borrow from friends and family. Increased awareness of the potential drawbacks of a payday loan means that business people who split their time between Israel and the UK have found the borrowing from family is a better option than taking the chance on a provider. Unless the better alternative exists, payday loans are a necessary evil, but it is heavily advised that people seek out a different way of maintaining financial stability wherever possible.
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