R3, the insolvency professionals, have surveyed a representative 2,000 people to get a glimpse of exactly what the UK public owe, how far they’re prepared to go to put bread on the table and, of course, how they intend to pay it back. The overall impression is, mmm, not good.
Not only are many more people in debt further than a year ago but six out of ten people are actually concerned about the level of debt they’re in, a rise of over fifty percent from people who were similarly worried last year.
Not only did those surveyed have personal issues with the levels they owe but almost a half (nine out of twenty) are genuinely struggling to make ends meet from one payday to the next. To that end, seven percent of those are seriously contemplating a pay day loan within the next six months.
What is an instant cash loan, exactly?
Firstly, short term loans are unsecured cash advances that are designed to be borrowed over a short term period. They have grown in popularity purely because of the circumstances that so many of the UK population find themselves in, as outlined above.
They can be a worthwhile investment providing that they are repaid on the due date. The interest rate may look high on first glance, but when you consider the actual amount one has to repay, it can be cheaper than daily unauthorised overdraft fees or an unpaid credit card charge.
What is all the to-do surrounding short term loans?
The issue with short term loans is that they only really start to work for the payday lender when they get repeat business. Whether they lend £100 or £600, the fixed fees are the same: the credit checks, account creation, setting up fees – if you, the borrower, are taking out a repeat loan (not one that’s overdue), all of this information exists and the interest payable is, in the main, profit.
Therefore it is in the payday lender’s interest to set up a clause whereby, if the borrower misses the payment, the sum gets rolled over until the next payday; they are then paying the higher-than-average interest rate for a longer period of time, in effect giving the payday lender the repeat business to make the original loan worthwhile.
When the OFT were put under pressure to investigate the mechanics of payday lending recently, other than one or two dubious advertising methods that were quickly dealt with, they found nothing untoward in their practises as everything is clearly outlined in the terms and conditions and, as pointed out, they can be a cheaper alternative (if used correctly) than unauthorised lending from the high street.
More coming up on the R3 findings and Zombie debtors.