Mon, Jul 21, 2008
Consumers are increasingly turning to short-term loans charging interest of more than 1,000 per cent to tide them over until they get paid. The number of so-called payday loans taken out by Britons has more than doubled in the past ten months as shoppers struggle to cover their monthly bills, figures calculated for The Times show.
The growing strain on consumers' wallets prompted by soaring fuel and food prices has caused a boom in business for lenders of short-term loans at high rates of interest. The number of deals taken out in the UK has risen by more than 130 per cent since last August, according to figures from Moneysupermarket, the price comparison website. These payday loans are already popular in the US and have been blamed for exacerbating the housing crisis there.
Payday lenders, such as Payday UK, Express Finance and Pounds Till Payday, offer loans of up to £1,000. Payday UK demands that £125 be repaid for a £100 loan, or £937.50 for a £700 loan. The loan is usually paid off within a couple of days, as soon as the borrower's wages are paid into their account.
Payday UK said that the typical annual percentage rate (APR) for its deals was 1,355 per cent. The typical rate for a credit card is 20 per cent, while a high street bank charges about 18 per cent on an overdraft.
Andy Clarke, retail director at Asda, the UK's second-biggest supermarket, said that signs of pre-payday financial strain at its tills were growing. Mr Clarke, who is chairman of the CBI's distributive trades panel, said: "In the week before payday, shoppers are buying a higher proportion of value products."
Debt charities cautioned that these loans, which are available to people in full-time work earning more than £750 a month, often appealed to people who were in financial difficulties and could exacerbate their problems. Chris Tapp, of Credit Action, a debt charity, said: "Over the past year, payday loans have become an issue in the UK, and the growth in people who have problems who have such a loan has been notable in the last six months."
Vince Cable, Treasury spokesman for the Liberal Democrats, said: "The growing popularity of these loans highlights the problems stemming from the credit crunch and unsustainable levels of personal debt in the UK."
The growing strain on British shoppers was highlighted by the monthly CBI distributive trades survey, which showed that 9 per cent more retailers reported a fall rather than an increase in sales this month. This was an improvement on April and May, but the CBI gave warning that there were torrid times ahead for high street retailers. The findings are at odds with official data out last week that showed a 3.5 per cent surge in retail sales in May, powered by clothing sales. Analysts suggested that next month's official data
Source: http://business.timesonline.co.uk |
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