Workers becoming more reliant on payday loans
October 21, 2010
According to a recent report workers are becoming more and more reliant on payday loans to get them through the month, with many finding it difficult to make their finances stretch far enough without turning to these loans. Whilst payday loans can be useful on occasion those that are using them regularly can end up paying a fortune in interest, which is something that concerns many industry officials.
The interest rates on these payday loans can reach an astonishing 2700 percent a year. Officials have said that these loans are effective for occasional use, as they eliminate the need to cash strapped consumers to turn to loan sharks. However, a rising number of consumers are using these loans and then rolling them over from one month to the next, which is resulting in crippling interest charges.
Officials from Datamonitor said that the situation is set to get worse, with the number of people using these costly short term loans set to triple over the next five years. £1.2 billion was borrowed through these loans in 2009, but the research by Datamonitor suggests that this is set to increase to between £2.7 billion and £3.5 billion by 2014.
The increase is likely to be fuelled by changing employment patterns, with the government cutbacks and the economic downturn leaving many people struggling to make ends meet. Many of these lenders do not carry out credit checks, and the loans are available quickly, which has made them increasingly popular amongst consumers who are able to prove that they are working.
Daoud Fakhri, analyst at Datamonitor, said: “There has been an increase in the number of people working part-time and by the hour which has meant that there’s been a greater fluctuation in pay, leading to cashflow problems for many consumers.”
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