3.5 million Brits expected to use short term loans by June 2012

Overspending on Christmas could result in a massive 3.5 million people in the UK taking out a instant cash loan in the next six months. 

In the run up to the festive season, cash strapped Brits have been turning to short term loans like never before. These loans are designed to help tide people over until their next salary hits the bank, but if they are not paid off in time, the interest rates can be crippling.

The trade body representing insolvency professionals, R3, conducted a survey on the usage of payday advances in the UK. The company discovered that a lot of people take them out in order to pay back other debts. 60% of those who are desperate for money are women, primarily those in the 18 to 35 age bracket.

Worryingly, nearly 50% of those who have made use of an instant cash loan said it caused their financial position to deteriorate, while only 13% believed it actually helped them. The survey also found that there were an increasing number of “zombie debtors”; those who can only afford to pay off the interest and never reduce the amount they owe.

Frances Coulson, the president of R3, said it is not going to be possible to hang on each month. When interest rates rise, or circumstances change, this group will be left with few options.

In October this year, 60% of Brits were worried about their level of debt. In October 2010, that figure was just 39%. Regionally, 70% of those in the North East are worried about debt, compared to just 50% of those in the East.

The coalition is currently reviewing the instant cash loan industry but the results are not expected until the autumn of 2012. Will that be too late to stop some people descending into a lifetime of spiralling debt?

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