According to the consumer watchdog Which? over two thirds of people who took a payday loan regret having taken out credit.

Not only that, over half of them admitted that they took out a payday loan that they could not afford to service.

The lenders it appears are also at fault as 43% of borrowers said that it had been too easy to get the credit. Especially when you consider that Which? found that 57% of borrowers had missed one of their regular payments (loan or utility bill for example) within the past year.

In most case payday loans are not used for luxuries, they are used for essentials and emergencies and are usually advertised as a tool for addressing such issues.

So what is the loan used for? Essentials (food and fuel) – 38%, emergencies – 34%, regular bills – 32%, debt consolidation / debt rollover (very dangerous given the interest rates of typically 1,750% p.a.) – 24%, rent – 20%, holidays – 11%. These figures show that payday loan borrowers are people in need.

This follows on from research that Which? conducted earlier in the year, where a quarter of borrowers were hit with high and hidden fees for such things as reminder letters. While 57% of borrowers had been encouraged to take out more debt and 45% of them had rolled over their loan at least once. At the time Which? was calling for fees to be capped and more protection for the 1.2 million and growing borrowers.

Which? is continuing the call for more clarity by payday loan companies, a crackdown on excessive charges and for the Office of Fair Trading to get tough with irresponsible lenders.

Falling Money -

Falling Money –

But before pouring scorn on the borrowers and their plight consider that payday loan companies are the average Joe’s ‘lender of last resort’ and, because they can go nowhere else and the risk is high, the interest rates reflect the potential losses and costs for the provider. With a crackdown of the sort called for, many of these people would have no access to credit at all (can you see a high street bank lending them anything?). The borrowers in these cases feel they need to survive, they need the money today, right now, or they and their families freeze and starve – today! Tomorrow is another day. Not all borrowers are profligate wastrels either and if society cannot help them then someone will always step in and do so for a profit. This is in stark contrast to the lender of last resort for the cosseted banks, the Bank of England, whose interest rate is just 0.5%, a policy happily backed by the government. Now compare the relative needs of banks versus people and who is more at fault. Then go figure which of the two is more deserving of the support of low interest rates and QE etc.

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