New research the Debt Advice Foundation has discovered that 41% of consumers struggling to get to grips with their debts blame high-interest, instant short term loans for their financial problems.
The sector is undoubtedly growing at a rapid rate when you consider the number of online searches for the phrase ‘short term loans’ has doubled over the last 12 months.
According to the DAF research, 25% of people who had obtained an instant cash loan needed the funds to purchase food or other essential items for the home. A further 44% need the money to pay off an existing debt.
Worryingly, 49% of consumers who have taken advantage of these short-term loans said they were not fully informed about the interest rate levied on the loan and the total they would have to repay.
David Rodger, from DAF, explained that a lot of lenders point out that APR is an inappropriate way to measure short-term products and the majority of consumers are happy with the cost of their loan. The problem occurs when people do not repay within the designated time frame as the high interest rates quickly transform what had seemed like a manageable debt into an unmanageable liability.
DAF is also concerned that a lot of lenders offer no credit check short term loans. He thinks it should be obligatory for lenders to inform the credit reference bureaux when somebody takes out a loan and to check whether the borrower already has outstanding liabilities.
Consumer organisation, Which? recently published its investigative report into the short term loans sector. It discovered that poor practice was widespread, with some companies continually offering consumers larger and larger loans and leaving them vulnerable to major debt problems in the future.