The cash is often emergency borrowing to pay an urgent unexpected bill, or rent or utility bills

Home / internet payday loans / The cash is often emergency borrowing to pay an urgent unexpected bill, or rent or utility bills

The cash is often emergency borrowing to pay an urgent unexpected bill, or rent or utility bills

The cash is often emergency borrowing to pay an urgent unexpected bill, or rent or utility bills

Insolvency experts have predicted that more people who are short of money are going to turn to payday lenders – who can be found on the High Street and the internet – for a short-term loan.

Some debt charities and consumer groups have warned that such lenders can lure the unwary into taking on debt that balloons out of control.

An official study in 2010 said they provided a legitimate, useful, service that helped to cover a gap in the market.

And by the end of the year, the government said there was “growing evidence” in support of a cap on the cost of a loan, including the fees and interest rates.

Typically someone will borrow a few hundred pounds from a payday loan firm for a short time, to tide them over until they receive their next wage or salary cheque.

In 2008, ВЈ900m was was taken out in the form of payday loans, according to the Office of Fair Trading in a formal review of all “high-cost” credit businesses in 2010.

As a result of its most recent inquiries, which led to an interim report in , the OFT thinks that as much as ВЈ1.8bn a year may now be being lent by payday lenders.

The OFT found that the typical borrower of a payday loan was “more likely to be a young male, earning more than ВЈ1,000 monthly, and in rented accommodation. Many are unmarried with no children”.

The OFT said in that there were about 240 payday loan firms altogether in the UK, with the top 50 accounting for most of the lending.

Its previous research suggested there were about 2,000 High Street payday loan shops, some of which are part of large national chains, such as The Money Shop.

Across the whole consumer credit industry there are 72,000 lenders, the PAC says, but this includes credit card firms and door-to-door lenders.

Yes. Any lender, whether it be a big High Street bank or a one-outlet payday loan shop needs a consumer credit licence from the Office of Fair Trading (OFT).

But in the eyes of the borrower that is often not relevant. What matters is the cash cost of repaying the loan.

That can be acceptable to the borrower if the payday loan is more convenient than an overdraft, or some other sort of arranged loan, and is taken for just a few days.

The problem for a borrower starts to build up quickly if he or she cannot in fact repay the loan as planned, and it gets extended, or rolled over.

The interest then builds up rapidly and can soon swamp the size of the original loan

Despite the negative publicity surrounding payday loan firms, the OFT said in 2010 that these and other high-cost credit businesses – such as pawn brokers or home-credit lenders – should not have their interest charges restricted.

It concluded that they provided a useful service for some people who would not otherwise be able to borrow legitimately and who might thus be forced to borrow from illegal loan sharks.

The borrower will usually offer a post-dated cheque to the lender to cover the eventual repayment of the money borrowed, plus interest

But it changed its tune in its report specifically on payday lenders. It referred the industry to the Competition Commission and has told individual lenders to improve how they deal with customers.

However, the PAC was scathing of the OFT’s record, accusing it of being “timid and ineffective” payday loans in Carlisle in regulating the sector in a report published in .

The Consumer Finance Association, a trade body representing some payday lenders, says some of the biggest firms have signed up to a code of conduct.

However, the government has proposed going further with a cap on payday loan interest rates and charges. The regulator, the Financial Conduct Authority, will make recommendations on how this should work.

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