Payday loans providers benefit from Britain’s economic woes

The growing success of the short term loans business in Britain appears to be directly related to the financial problems the country is going through at the moment. Experts have predicted that the number of people taking out short term loans will rise from the two million in 2011 to three and a half million by the end of 2012.

The statistics were provided by short term loans company Ferratum and were backed up by Price Waterhouse Cooper who estimated last week that the rise in the use of short term loans will soon overtake the use of credit cards.

Citizens Advice Scotland reports that two out of five of their clients are foregoing basic necessities like food and fuel in order to be able to pay back debts they have incurred from taking out short term loans, including short term loans. These companies are well known for charging very high interest rates – up to 4,500% on an annual basis and the evidence is that some of the companies pursue people who cannot pay their loans back very vigorously.

The opposition to short term loans companies is widespread, but the whole situation is quite complex as PWC points out. There is a lot of variation in short term loans companies and not all are total rip offs. The people who take out short term loans are quite a diverse group and many are doing so because the short term loans providers are making instant cash available much more easily than traditional lenders.

Moves to crack down on the excesses of short term loans companies will focus on the amount of TV advertising, legislating a ban on the ability to roll over a loan and setting a cap on the really high interest rates that some companies charge.

These measures are seen as part of the answer to the problem drift into debt that so many people in Britain appear to be moving towards. Other strategies will focus on education. This will include repayment illustrations emphasising the dangers of spiralling debt and making advertising of interest rates and repayments by short term loans companies more transparent.

Borrowers will also be advised to seek out alternative ways in which to obtain a loan, like credit unions and set up banking facilities for those who lack creditworthiness, as well as encourage people in debt to go for free financial advice and debt guidance.

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