Need some dosh, wonga or moolah? If this doesn’t mean anything to you, you’re probably not one of the 1.2 million Brits who took out a payday loan in the past year. And there are very good reasons why you shouldn’t…
I’ve spent the last few weeks rummaging through payday loan websites. And not because I’m desperate for some cash, but to find out how good (or bad) lenders are at informing customers about the key features of these loans that often come with an expensive price tag. Result: not very good.
And although I’m greeted with advertisements to take out speedy and easy payday loans everyday, knowing what I know, I’m not tempted in the slightest.
Can’t afford to borrow? No problem!
We found that 8 out of 34 payday lenders did not perform a credit check as part of the application process. But even if they did, that doesn’t stop them from lending to people who cannot afford to pay them back.
Our survey of payday loan customers found that almost half had rolled over their loans at least once – clearly a sign that people struggle to repay the loan on time. Yet more than half claimed to have received communications from lenders encouraging them to do so. This seriously puts into doubt lenders’ claims that they are ‘responsible lenders’.
We also found that a third of payday loan customers experienced financial difficulties as a result of taking out a loan, such as being unable to pay for essential bills. This is unsurprising given that most lenders do not actually ask you for any financial information other than your salary – hardly a thorough way of assessing whether somebody can afford a loan.
And since over 60% of the people we asked took out payday loans to pay for essential bills anyway, they’re getting caught in a spiral of debt, where they’re hit with exorbitant penalty charges because they can’t afford to pay back the loan on time.
KA-CHING! The sound of default
Judging by what some lenders charge you for reminder letters, you could be forgiven for thinking that they must be using diamond-encrusted envelopes.
One lender, Quid24.com, charges £25 for each reminder letter they send you. And they send them quite often! The fifth email on the tenth day of missing your payment will even set you back by £50. This means that a small loan from this lender could hit you with as much as £150 extra, which is hardly what you want to hear if you already struggle financially.
In fact, I struggled to work out exactly what it would cost me if I defaulted, as many lenders don’t put this information on their website. If it is stated at all, it’s often only put on an FAQ page rather than the terms and conditions where they belong.
Despite all this, the market for payday loans is growing as many people have nowhere else to turn for emergencies. Would you take out a payday loan? If not, why not? Or do you think there’s a place for payday loans provided lenders clean up their act?
What do you think about payday loans?
Payday loans should be banned altogether (52%, 113 Votes)
They would be OK provided payday lenders cleaned up their act (37%, 81 Votes)
If people need a payday loan, then leave them to it (11%, 23 Votes)
Total Voters: 217