Could short term loans be to blame for debt problems?

Recent survey findings from one debt charity has suggested that short term loans may be to blame for debt problems in consumers, as more and more turn to instant cash loans for their needs.

The Debt Advice Foundation’s research survey discovered that 41 per cent of those that have debt problems claim these problems are as a result of using no credit check short term loans.  Meanwhile, the number of searches for online loans has increased by double over the last 12 months, which may indicate the sector’s rapid growth.

The new research findings come on the heels of other findings showing that some providers of short term loans are poorly managed, with some firms allegedly offering consumers larger and larger loans as the months go by.  Other providers were accused of ‘rolling over’ loans, offering deferred repayment if the consumer agreed to pay a high interest charge for the subsequent month, and one loan provider was even found to have not been operating with a consumer credit licence.

According to the DAF, 25 per cent of those taking out short term loans used the money to purchase food or other household essentials.  44 per cent reported using short term loans to pay off debts from other sources, and at 49 per cent, nearly half who had taken out short term loans said that, in their own opinion, they were not given enough information in regards to the rate they would be paying, not to mention the total repayment they would have to make.

DAF spokesman, David Rodger, remarked that many loan providers will quite readily point out that, since these products are so short term, it isn’t always appropriate to use an APR as a measure.

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