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Payday Loans – The Facts And Figures

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There’s no denying the facts. Payday loans have not had much good press. The promise of fast cash is appealing, but you need to be aware of all of the facts before making a decision. There are a number of cheaper, lower risk ways of dealing with money worries, but if a payday loan is your only option then you need some upfront information.Payday loans originated in the US and the industry is rapidly growing in the UK, with the sector estimated to be worth around £2 billion. If you are considering taking out a payday loan, here are some facts and figures to help you make an informed choice.

The basics of borrowing

In 2012 and 2013 customers in the UK borrowed a total of £3.9 billion in payday loans – equivalent to the price-tag attached to a 3662 Bugatti Veyron. This figure translates into 15 million individual loans over that period. This figure is a sharp rise from previous approximations. In 2009, Consumer Focus estimated that around 4.1 million loans had been taken out that year.

The typical amount of money borrowed by payday loan customers is £270. And it is estimated that the average customer takes out three or four additional loans in the 12 months following their first loan.

How do they work?

The idea is a relatively simple one. A customer borrows a few hundred pounds from a payday loan lender for a short period of time. The borrower then usually gives the lender a post-dated cheque which covers the amount borrowed and the interest accrued. The ideal scenario is that the borrower repays the amount (plus interest) as soon as soon as they receive their next pay cheque. Lenders also offer the option of ‘rolling over’ the outstanding amount, and this is when debts can increase quickly so it should be avoided if possible.

The average payday loan borrower

Research suggests that 3.16% of Brits have made use of a payday loan at some time. So who is the average borrower? A study carried out by the Competition Commission reveals the identity of the average payday loan customer – young, male and living in rented accommodation.

Dig a little deeper into the study and we learn that 60% of borrowers are male with an average age of about 35 years. In general, they are earning more than £1,000 a month and are unmarried with no children.

Eligibility for payday loan borrowing

There are a number of requirements that customers must meet before they can take out a loan. These include customers:

  • Being at least 18 years of age
  • Having a full-time job
  • Being a resident of England, Wales, Scotland or Northern Ireland
  • Having had a bank account for at least six months
  • Earning at least £300 per week
  • Only borrowing between £50 and £1,000

Why do people need payday loans?

Borrowers generally see a payday loan as a viable alternative to having an unauthorised bank overdraft. 2% of Brits have made use of the payday loan service after their application for a loan or overdraft has been turned down by one of the high street banks.

Around 50% of those surveyed said that they needed to take out the loan in order to cover living expenses, including bills and grocery shopping. Four in ten reported they had no choice but to take out the loan as other options were not available to them. And 1.9% of the UK population considers taking out a payday loan in order to cover the cost of Christmas.

What do the customers say?

Almost half of customers state that their experience of taking out a payday loan has been a positive one. And 30% would take out another payday loan in the future.

What are the alternatives?

When making any decision about borrowing money it is always good to look at the whole picture.

  • Friends and family: Interest-free loans are definitely the best option but not always possible. Make sure you are clear about when you can make the repayments and stick to the plan. You don’t want to leave friends and family out of pocket
  • Student loans: Only an option for students (obviously), but hardship funds and loans could provide you with the money you need
  • Overdraft: Speak with your bank to see if you can arrange an authorised overdraft
  • Personal loans: Only viable when you want to borrow larger amounts of money. A good option if you are looking to borrow over £5,000 – any less than that and you need to look at other options
  • Create your own loan fund: Put away £10 a month (or whatever you can afford) to build up a supply of cash that you can use when you need it

What does the future hold for payday loans?

All payday lenders are regulated and require a consumer credit licence from the OFT (Office of Fair Trading). The Financial Conduct Authority is in charge of regulating the industry to ensure that rogue lenders are prevented from operating.

At the end of last year, the government announced its plans to introduce a cap on payday loans. Similar caps are already in place in Australia and the UK government is hoping to replicate these models.

Whatever laws are put into place, the fact remains that 15 million loans were taken out in the last two years. People rely on these loans to provide them with a quick injection of cash. The fact remains that payday lenders offer something that our banks don’t. If the cash cost of repaying these loans is acceptable to the borrower as an alternative to a bank overdraft or other short-term loan, they have their place in the financial market.

If you would like more information about payday loans and whether they could work for you, get in touch. Go to www.paydayloan123.co.uk for more information.

https://www.moneyadviceservice.org.uk/en/payday-loans

http://www.bbc.co.uk/news/uk-politics-25083701

http://www.huffingtonpost.co.uk/sarah-willingham/payday-loans_b_4342649.html

http://www.huffingtonpost.co.uk/naomi-kerbel/payday-loans_b_4225367.html

http://www.bbc.co.uk/news/business/16067283

http://www.telegraph.co.uk/finance/10203843/Payday-loans-industry-by-numbers.html

http://www.theguardian.com/money/2014/jan/31/multiple-payday-loan-borrowing-widespread

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About the author

Peter Davis Peter Davis is a Marketing Analyst at PaydayLoan123 specialising in financial products. Peter writes most of our articles as he stays up to date with the latest information. He enjoys most sports, particularly playing football and watching his favourite football team. Peter really like his food too as we have all witnessed first hand!

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