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Debt fears as payday loans boom

posted 19 Mar 2012, 08:54 by Mpelembe   [ updated 19 Mar 2012, 08:54 ]

As many Britons struggle to pay their bills, increasing numbers of people are taking out a payday loan, to get extra money until they next get paid. But there are concerns some lenders might be taking advantage of people in financial difficulty.

UK-PAYDAY LOANS - One industry that's growing despite the tough economic climate - payday loans companies.

Banks are not lending as they once did, and there have never been more people looking for alternative sources of cash.

The number of Brits seeking a short-term loan has reportedly quadrupled in recent years and one group of insolvency experts, R3, says up 3.5 million people are likely to borrow in this way in the next six months in the UK alone.

These loans provide money to tide you over until you receive next month's wage.

But Steve Perry learnt the hard way when he wanted to pay for a weekend break.

Steve Perry, Founder of Say No To Pay Day Loans campaign, saying

"I'd been working really hard earlier on that year and I just felt like a break was well deserved. I actually went to my bank initially to ask for an overdraft or a small loan from them, but refused on both occasions because of a poor credit history."

Steve repaid in full the £250 he borrowed, plus the interest. But that left him short of money. So he took out another loan, then another.

Sucked into a spiral of debt, he had more than 60 loans over 18 months.

Steve Perry, Founder of Say No To Pay Day Loans campaign, saying

"It almost destroyed me. At one point, before I'd defaulted, before I'd found a solution, if you like, I'd lost contact with my friends, with my family, I was very, very isolated, I was in a very, very dark place at that time. Clearly, since then, nothing's ever been the same since."

Those in favour of payday loans say they fulfil a specific need for easily accessible short-term credit.

But others like Damon Gibbons from the Centre for Responsible Credit, say they aren't a solution to debt problems.

Damon Gibbons, Chief Executive, Centre for Responsible Credit, saying

"It's very worrying because the trend seems to be for people to roll over a loan from one month to the next and that creates an ongoing debt burden and as I've said these are often people in fact who are only taking the payday loan because they've already got significant debt problems with credit cards and overdrafts."

Steve's set up a campaign - Say No To Payday Loans - and some MPs are calling for more regulation of this growing sector.

The Office of Fair Trading has launched a review of over 50 major payday lenders, due to concerns some may be taking advantage of people in financial difficulty.

The Citizens' Advice Bureau says four times more people go to them for help with payday loans compared with two years ago.

It's too late for Steve, who is now getting his life back on track.

But it's hoped inspection of the loan sector will prevent other people taking on debt they can't afford.

Joanna Partridge, Reuters