Payday loan use quadruples since 2006, says Consumer Focus

Monday, 16 August 2010 12:00

The number of people taking out controversial - and expensive - payday loans has quadrupled since 2006 to 1.2 million, according to new research.

Consumer Focus said the typical amount borrowed comes to £294 a month, the equivalent of £1.2 billion a year.

Charges on these loans normally range from £13 to £18 per £100, but can be as high as £30 per £100 among some online lenders.

Given the short-term nature of the products, such charges can generate APRs of between 1,000 and 2,000 per cent.

Consumer Focus said payday loans can potentially leave people in a "debt trap".

Someone borrowing £300 would typically pay back £360 if they settled up after one month. However, if the repayments were deferred or "rolled over" for six months, the cost rises to £660.

The organisation noted that some US states have already banned payday loans, although there is no conclusive evidence that this necessarily helps consumers.

Nevertheless, it has called on regulators to ensure there are proper safeguards to protect borrowers from spiralling debt and encouraged banks to offer alternative, short-term loans.

Last month, the Office of Fair Trading announced a review of the UK's high cost consumer credit market, which it estimated is worth £35 billion a year.

• Tags:
• loans
,
• news
,
• payday loans