With tight household finances, new research shows that people are increasingly turning to payday loans in order to cover their essential spending and the costs of Christmas.
The R3 Insolvency Group , which represents professionals working with financially challenged individuals and businesses , have published findings based on interviews with 2,000 people. Payday loans, also known as microloans, is now a £2 billion business, thanks to people borrowing anything from £50 and £300.
Costs are high with charges typically ranging from £13 to £18 in interest for every £100 borrowed, but can be as high as £30 per £100 for some online providers.
Consumer Focus, the statutory consumer organisation in the UK, said that the average payday loan is for £300 and goes to a household earning less than £25,000.
On average the people using microloans are aged between 18 and 35 and work full-time, but find that money is tight from time to time. They therefore use the payday loans, which are small, short-term, unsecured loans, to tide themselves over until they get their next pay cheque.
Other experts added that about 60% of people were worried about their level of debt.
R3 states that 45 % of people are now struggling to make their salary last from month to month, with more people than ever expected to buy gifts using payday loans in the final run-up to Christmas.
The trend of borrowing money using payday loans is likely to continue into the New Year, when people start to get their credit card bills through after their Christmas spending
Young people turn to payday loans
Worrying numbers of 16-24 year olds are using a payday loans too.
Frances Coulson, R3 President said: “It’s worrying to see that the 16-24s are developing bad money management skills so early on. Fewer people than last year, across the board, have borrowed money but there are still some weeks until Christmas. With unemployment figures up, we can only expect to see more people saying they are struggling to afford the demands of the festive season.”