You can hardly watch 30 minutes of TV without catching at least one advert break in 2011 - and the chances are that this commercial interlude will include at least one entry from a financial services provider!
Increasingly, these companies are concentrating their efforts on the lowest earners in the UK and the most recent phenomenon of the doorstep or pay-day loan. Typically ranging between £50 and £1500 and lasting for between 5 and 30 days, these loans are designed to help those who run out of cash at the end of the month and need a cash injection before their wages are paid, in order to meet pay their everyday expenses.
According to a recent survey, most households run out of cash on the 22nd or 23rd of each month. As most of the employed workforce in the UK are now paid once per month they will be familiar with these barren final few days until the next pay check comes in.
In the not-to-distant past, this gap would be filled by taking ‘overtime’ at the factory or by pawning your grandfather’s watch, but the modern equivalent is to walk into the various cash shops that have opened up offering payday loans or to visit the websites or indeed i-phone applications that are available.
An alarming number of UK households are now using pay-day loans on a semi-regular basis to help see them through. In many cases those taking the loan do not realise that rates of up to 3000% can be charged for such loans. Crass calculations for sure, but what these ‘telephone number’ APRs do demonstrate is that a closer look into this areas is required. The fact that the loan is repaid in such a short period of time does have an effect on the APR being higher.
By the time that you have borrowed £100 for 2 weeks, it is common to repay a total of in and around £120. That £20 might seem like a small price to pay, but in effect this ‘eats’ £20 into your wages each month that you use a doorstep or payday loan company.
Furthermore, should you fail to make the agreed repayment, then the £100 borrowed can quickly turn into hundreds and even thousands as late payment penalties, bounced bank direct debits and the somewhat dubious administration charges are applied to the cost of the loan.
So why is the UK turning ‘en masse’ to this form of lending? In the past, if you were short at the end of the month, it would involve one quick call to your bank to request a short-term overdraft or extension to your overdraft. Now with the state of bank finances, these short-term requests are increasingly falling on deaf ears as banks tighten their purse strings. The result is that increasing numbers flock to doorstep loan companies for what they see as a quick fix to their financial struggles.
Is it this ‘ease of availability’ that customers are drawn to? Or the flashy ‘friendly’ looking advertisements? Or indeed the fact that these companies are not the large corporate banking organisations that the public increasingly blame for the hard-times experienced in the current economy.
Perhaps it is more appropriate to blame a lack of education and public understanding of what a failure to repay the short-term advance would entail. Instead of the government looking to legislate around these large APRs, a more sensible option would be to ensure that customers taking such loans were fully aware of what might happen should they fail to repay the loan – but this subject sounds like an all together different subject for a blog!
If you are experiencing financial difficulty caused by taking out such a loan, then you may want to get some independent help to review your overall financial circumstances to at least stop this debt from escalating further. Here at Lewis Alexander we are available to listen to your personal circumstances before appointing one of our independent debt management consultants to assist you with your case.
Call us today on 0800 018 6868 and we will work with you to help you out of your financial difficulties. All we ask is that our clients have a regular income and a will and determination to improve their circumstances.
Sitting on a situation and taking no action rarely helps, so call us FREE from a land line today on 0800 018 6868 and start to take control of your finances again.
