In 2010 an official study in the UK announced that their study showed that payday loans provided a useful and legitimate service which filled the gap in the UK loans market. Within two years however, in early 2013, the Office of Fair Trading announced that there was widespread irresponsible lending in the industry.
Anyone who has searched Google recently can attest to the fact that there are plenty of scammers out there and they are definitely behaving irresponsibly! Google is also trying to sort out the bad guys from the good, responsible lenders and although they have started the process we suspect that it won’t be a quick and easy fix.
Although payday lenders have faced criticism in recent months we must bear in mind that the industry is filled with responsible payday lenders and it is the irresponsible payday lenders and spammers who are downright crooks giving the payday loans sector a bad reputation. A few debt charities and consumer groups have warned that irresponsible payday lenders sometimes continue lending to the unwary until the debt spirals out of control.
How do payday loans work?
It is typical for someone to borrow a few hundred pounds from a payday lending firm to tide them over to their next salary payment or wage payment. Often the borrower will issue a post-dated cheque to the payday lender to cover the payment of the amount borrowed, including interest. More often than not the borrowed money is for an unexpected emergency. In this instance payday loans do a great job of covering the gap in the loans market because banks don’t typically loan small amounts these days. Gone are the days when we could pop in to our friendly bank manager around the corner and tell him or her about our troubles!
Do many people make use of payday loans?
Official figures don’t exist for the number of people borrowing from payday lenders but Consumer Focus estimates that in 2009. 1.2 million people took out 4.1 million loans. That is a substantial amount of people making use of payday loans. It is now believed that as much as 1.8bn pounds a year is being lent by payday lenders.
Who typically uses payday loans?
The Office of Fair Trading (OFT) has found that a typical payday loan borrower is likely to be a young male who earns more than 1,000 pounds per month, lives in rented accommodation and is unmarried with no children. Typically borrowers are normally employed and have a bank account. The payday loan borrowers typically view the short-term loan as a better alternative to running up an unauthorised overdraft at the bank.
Other borrowers have turned to payday loan companies because of squeezed household budgets and banks which have restricted their credit offers.
How many payday lending firms are there?
According to OFT there were approximately 240 payday loan firms in the UK in 2012. OFT also states that the top 50 payday firms account for most of the lending.