During 2018, people in the UK borrowed around £1.2billion from payday loan companies with the average loan being between £200 and £250.
Recent regulations, introduced by the Financial Conduct Authority in 2014, helped to curb excessive interest rates from these organisations. These ensured that payday loan costs couldn’t rise more than 0.8% each day and have a 100% total cap. Borrowers have also been protected by the fact that they never have to pay back more than double what they originally requested. However, this still means that a £200 loan can turn to £400 very quickly.
Used responsibly, loans from payday lenders should not become an issue. However, many people take out these with a plan to pay them off quickly, and only to use them for emergencies. However, those monthly loan repayments take a chunk of their wage and leave them less able to prepare for future expenses.
If you borrow £200 for a new washing machine on an already tight monthly budget, you'll have even less money to spare next month when you start paying back what you owe. If you're faced with another unexpected expense, or simply can't keep up with your food bill, you may need to borrow even more money. If you choose to skip a payday loan repayment to afford the month's essentials, you may receive a default fee.
What first seemed like a small and manageable debt can spiral out of control. Payday loans are now under much stricter regulation than they once were, but are still a short-term and high-risk way of borrowing money.
Payday loan debts are what's known as a non-priority debt. This means that skipping payments, whilst being bad for your credit score and resulting in extra fees, will not have immediate serious consequences – such as legal action.
If you can't find a way to increase your income to pay off your loans in your own time, you may need additional help.
Fortunately, a range of debt solutions are available, such as IVAs, or debt management plans. These aim to freeze interest rates and allow you to repay what you owe at an affordable rate. In some cases, the payday loan debt could be partially written off.
If you're struggling with payday loans, you are not alone. Every year, millions of people are forced to resort to short-term credit in order to make ends meet. We can help you with your finances, get you back on track and find the right debt solution to give you space to breathe.