Four million people could turn to payday loans this Christmas

The Momentum UK Team 05 December 2012

Four Million UK adults could turn to payday loans to finance their Christmas in 2012, a study from R3 the insolvency trade body reveals.

The financial pressure of Christmas has seen a significant rise in those seeking payday loans according to the report, with a 50% increase in individuals considering controversial short term high interest "payday loans" as an option. The numbers show an increase on the previous year from 3.5 million individuals to 5 million today.

The study revealed that 18 to 24 year olds are the most likely to take out a payday loan with just over 25% of adults in that age group now seeing them as an option, compared to 4% of over 45s.

Louise Brittain, R3 Council member says:

“Debt has been normalised, attributable in part, to the clever marketing campaigns of the big payday lenders.”

In November there was a significant push by the government to either cap or control the amount on interest charged by payday loan companies.

The BBC cited annual interest rates of 4000% and reported that ministers were targeting the Financial Services Bill, to provide the planned Financial Conduct Authority the power to limit charges.

The amount of debt held across the UK is almost equal to the total amount of money generated by the entire country, with a total outstanding personal debt of £1.415 trillion.

The study from R3  reveals that 13% of UK adults prioritise repaying their debts over purchasing essentials such as food, and 59% of the UK population saying they are ‘worried’ about their level of personal debt.

Louise Brittain went on to say:

“I am worried that so many individuals are intending to take a payday loan to cover the cost of Christmas. I would urge people to think again before taking out a high interest loan”

In a response, the Consumer Finance Association, who oversee the actions of payday loan companies said:

"Our members lend responsibly and we advise people to borrow responsibly

"Having researched more than 1000 payday customers we know that 85% of them have no difficulty repaying their loans and just 19% of loans are for non-essential items such as gifts or holidays.”

Louise Brittain of R3 concluded:

“My concern is that a significant proportion of these individuals will not be able to pay off the loan in time – meaning they will need to take out another one or roll it over and could end up facing high penalty charges.”