The worst-off people in Wales are getting caught up in the cycle of short term loans and leaving themselves in debt to the tune of thousands of pounds.
Small short-term loans are heavily advertised, and these can be a godsend to people who need a one-off sum to tide them over to the end of the month salary day. However, consumers should be careful not to become reliant on this form of finance because short term loans do attract high interest rates.
Since the recession, wage increases have not kept up with inflation and a lot of people have been struggling to make ends meet. More than 30% of Welsh adults have an overdraft with their bank or building society, 28% have a personal loan and just under one in four have at least one outstanding credit card to pay off. In addition to these debts, one in eight is paying high interest rates to a doorstep lender.
Data from the British Bankers Association showed that in excess of £34 billion was outstanding on credit cards at the turn of this year. However, with banks tightening their lending criteria, the amount outstanding on personal loans was £45 billion – the lowest in ten years.
To combat this lack of funds from traditional lenders, more and more people have turned to other means of obtaining finance and this has led to an increase in unscrupulous lenders who pray on the desperation of people struggling to survive.
Payday loans should be seen as a last resort not a regular monthly occurrence. They are a valuable way of meeting a one-off payment but a lot of people would find it better to set aside a budget for unexpected eventualities rather than relying on a payday advance.