Payday Loans Quadruple In Two Years

According to the Citizens Advice Bureau the number of people getting themselves into debt via payday loans has increased fourfold in the last 2 years and they are calling on the Government to tighten lending regulations – and by that they mean make payday loans harder to get.

Thankfully the Government appears to still believe in leaving us with the choice and Consumer Minister Ed Davey is known to be of the opinion that any change in regulations would simply open the door to illegal loan sharking – and he’s right.

A total of 3 times the former Labour Government looked into capping interest rates on payday and doorstep loans and each time the report came back with the same answer – don’t do it because you will be pushing the people you are trying to protect straight into the arms of the illegal money lenders, the type who break legs when the payment is late rather than simply charge an extra £25.

Citizens Advice Bureau debt Chief Peter Tutton moaned to the Sunday Mirror this week:

“We are in hard times. People’s finances are shot, people are struggling. You take an expensive loan product to deal with your problems and you find it makes it much worse and the regulatory regime that oversees lending is not working either. The Government needs to get serious about making it more effective.” Read the full article here.

Whilst it is easy to understand where he is coming from I don’t understand why he wants to remove payday loans as a viable option for anyone facing an exorbitant overdraft charge or a utility being cut off.

The average customer of Payday Kong is a middle income earner with a wage of between £25k and £50k and he is borrowing £350 to cover a direct debit payment that is due to go out of his account before he gets paid this month. The payday loan works out far cheaper than the amount his bank is going to charge him for going overdrawn. The problem with this is what exactly?

Yes you can find stories of people running themselves into a financial mess with payday loans but in every case I have seen used as an example as to why payday loans should be banned, it is the borrower who is being irresponsible.

The BBC recently ran the story of someone who blamed payday loans for his £22,000 of debt. “He took out 64 loans from 12 different companies over 18 months, leaving him with a debt of £22,000″ says the report here.

Surely this debt is down to the irresponsibility of the person – I am assuming he didn’t mention his other payday loans as he went to each of the 12 lenders applying for their loan service – rather than the lender?

People have been running themselves into credit card debt since plastic was first invented. I don’t here MP’s or the CAB demanding we are only allowed to have one card at a time or that the actual credit card companies should frown on issuing one of their cards to someone who already has a card from one of their competitors. I mean, what do they think we want another card for exactly?

How about mortgages, the biggest debt of all for most of us – last time I filled out a mortgage application I don’t recall it asking for a guarantee that I would be in work for the next 300 months – or even 12 months for that matter.

The fact is that just as with any other form of credit we have access to, payday loans are open to abuse if the person borrowing the money is being (or going to be) irresponsible but you can’t ban this service from the market place or make them an unviable business for the lenders by capping interest rates just because a few people don’t use them for the purpose they were intended.

That would be like banning mortgages because some people got their homes repossessed or ending student loans because one of them dropped out.

If you need to take out a payday loan you should never borrow more than you can afford to miss out of your next salary. Do not roll over the loan into a second or third month because that’s how you end up paying stupid amounts in interest charges.

Always compare payday loans and get the one that best suits your needs – ie. if you need a loan for 3 months find a lender that offers this service rather than taking out a 1 month loan with the intention of rolling it over.