In 2018 alone, scores of people all across the United Kingdom took out over 1 billion pounds worth of payday loans. These predatory lending services charge exceptionally high interest rates and have expensive fee structures that can make it difficult to ever escape from their clutches. The debt spirals exponentially and becomes almost like an addiction that both feeds itself and sucks the people who use payday loans financially dry.
The majority of the debt held by people who use these types of loans centers on the largest cities like London, Birmingham, and Manchester. Although the monetary amounts are not as high, the number of payday loans used by people in the West Midlands ranked at the top of the list with over 146,000.
Payday Loans Grow in Popularity
During the financial difficulties that spread across the United Kingdom before 2015, an ever-increasing number of individuals and families who live here turned to payday loans to take care of their everyday expenses. While getting this type of loan is relatively easy, the practices used by the companies make it almost impossible to pay them off fully and escape with your credit intact and your income secure.
Before the Watchdog put a limit on interest rates, some payday companies were charging up to 5850% on small loans. This means that if you borrowed £100 in January, you would owe £5850 by December.
The 2015 halt to these usurious APR's stopped the worst of the predation. The current guidelines make it impossible to charge more than .8% interest every day and cap the total interest payments over the life of the loan at 100% of the principal. This means that the most you can ever pay back is twice as much as you borrowed in the first place.
This does make the addiction to payday loans less painful to some degree. However, with billions of pounds still out there owed to these companies, it does not help much to the average person who needs quick and available money to help pay their bills. Payday loan companies enthrall people with the idea of having enough money on hand to take care of either regular payments or emergencies while destroying their financial futures.
The debt management charity Stepchange reports a 2% rise in all payday-type loan debt in just one year from 2017 to 2018. In that year, the Financial Conduct Authority reported a six-month total of nearly 5.5 million new loans. Either more people are becoming addicted to this type of quick-fix cash inflow or more are getting in trouble and cannot pay them back. This leads them to seek help from Stepchange and other companies or organizations. This is usually a good first step to attempt to uncover yourself from high-interest rate loans that seem specifically created to keep you under the company's thumb far into the future.
The Most Vulnerable Fall Victims to the Addiction
The reliance on payday loans is generally not due to bad decisions or risky behavior. Instead, young people who find it difficult to get a lucrative career off the ground or, indeed, any job at all, need money on hand to take care of necessary parts of life. They may not have the skills to properly manage their money, or may simply not have enough cash flow to cover expenses.
Then, they turn to payday loans because they seem like a quick and easy way to get out from under the struggle. Research shows that the companies are eager to hand out loans to people who cannot afford to pay them back and people who already are burdened by too much debt. Why? Because they know these people will not pay off quickly, and the payday loan company will end up with more money in the end through interest charges and other fees.
Regular calls go out from various debt agencies and financial interest groups for the FCA to do something beyond the interest rate limits put forth in 2015. Primarily, they want a requirement for the companies to make sure the applicants have sufficient income and ability to pay back the loans before they give them the money.
Payday Loan Reliance By the Numbers
The more populated the area, the higher percentage of payday loan debt that the people hold. Also, as you would expect, places with higher costs of living had a greater number of people seeking out financial help in this way. For example, London's reliance on high-interest loans averages out to over £29 for every citizen of any age who lives in that borough. Romford comes in next at £29 precisely and Dartford at £26.
Of course, this would be a perfectly acceptable level of debt for even someone with a part-time job to hold. Averages do not tell the full story. For people with this type of loan in Ilford, it translates into over £301. Harrow came next with £285 as an average loan amount for those who used these providers. Even less congested or costly areas can fall prey to this type of lending system. Lerwick in Shetland's average debt holder tops out at £282.
For the people who have one or more payday loans, the repayment schedules are difficult to honor and the interest rates excessive in the extreme. Still, what are people expected to do when they cannot pay their monthly bills? Where can they turn if some sort of emergency arises and they do not have a savings account or other forms of credit to fall back on?
While payday loans exploit people who have a great need for additional money and frequently ruin their financial standing four years in some cases, nothing can be done about the problem unless incomes fundamentally shift throughout the UK or if the powers that be impose additional regulations and limits on payday loan companies that charge ridiculously high interest rates.