Payplan joins call for safeguards on payday loans
Research by Consumer Focus suggests that 1.2 million people are taking out a payday loan every year, borrowing a total of £1.2 billion. The number has quadrupled since 1996, according to the watchdog group despite some companies charging interest rates of more than 2,500% a year.
The group is now calling on the industry to bring in more safeguards to protect vulnerable borrowers – an initiative welcomed by some of the UK’s leading debt solution companies, including Payplan.
“Payday loans are a better alternative than turning to a loan shark but the eyewatering interest charges can mean borrowers end up owing more and more as payments spiral out of control,”
said John Fairhurst, Managing Director at Payplan which provides free debt management advice and planning.
“We agree more should be done to make people aware of the long-term consequences of a payday loan. It might appear to provide a short-term solution but we often see people drawn into repeatedly taking out these expensive loans to try and keep up with unaffordable repayments to other creditors. Instead of improving their situation people often find that use of these loans exacerbates an already serious debt problem.”
Payday loans have increased in popularity during the recession. They are quick ways of getting hold of short-term credit of up to £750 secured online or through the high street and repaid monthly, usually on a borrowers’ payday, hence the name.
Interest rates differ from one loan company to the next but Payplan quotes an average example of £25 interest paid for every £700 borrowed. If the interest isn’t paid, the loan will be rolled over. In many instances, Payplan says borrowers take out further payday loans to cover the payment and so the debt spirals.
“This is not the way to pay off debt or the type of loan for debt we would advise people take out”
added Mr Fairhurst.
“If people find themselves with financial worries or facing debt then the best action is to take some impartial advice from an expert.”
About Payplan
Payplan is a free debt advice and solutions service that provides impartial advice to people in financial distress. Payplan helps over 100,000 people every year and works closely with organisations in the field of money advice and consumer and employee welfare.
If you are struggling to manage your monthly outgoings then contact Payplan for free debt advice online or simply call 0800 280 2816.
Written by Administrator on September 10th, 2010
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