Skyrocketing costs and worries about paying bills have led to increased interest in payday loans, according to a new survey.
Search by savings platform UK revealed a massive 350% increase in internet searches for payday loans in the past 12 months as the country faces a cost of living crisis and families struggle to make ends meet . Household budgets are being squeezed in every way, from petrol hitting a UK record £1.55 a liter last week to soaring supermarket food prices – and that’s before the new cap on Energy prices don’t come into effect next month, when the average family will have to find almost £700 extra every year just to pay their energy bill.
Kevin Mountford, co-founder of UKwarned that Payday loans can be a dangerous path, despite the short-term relief they may seem to provide.
Read more: The energy price cap explained
“It’s easy to fall into a cycle of debt with these schemes if you continually need them to cover shortfalls. With interest rates rising, payday loans will most likely leave you struggling financially, d especially since you will owe these companies an ever-increasing amount of money,” he says.
Payday loans are short-term loans for relatively small amounts. They may be easy to access, but the interest rates are very high. They work by agreeing that the company can take its payment from your debit card on the day your next salary payment is due, although some lenders allow you to pay over a longer period – often up to six months.
For some, they offer loans of last resort which, used well, can fix unexpected holes in people’s finances, although according to Moneysavingexpert Marin Lewismany of these loans were irresponsibly given and mis-sold to those who could not afford to repay.
Dozens of lenders with bad credit have gone bankrupt, including big-name payday lenders such as Wonga and QuickQuid, leaving customers with legitimate claims with dramatically reduced payments.
Citizens Advice agrees with Martin Lewis that payday loans are almost always a bad idea and warned against people seeing them as a quick fix to solve today’s problem.
Martin Lewis advised people to try the following ways to raise short-term cash before applying for a payday loan:
- A credit card offers interest-free spending, if you pay it off in full. A 0% card gives you even more time to pay without interest.
- Check if you are eligible for 0% government budget loan up to £812
- Ask for help from the family
- See if your local credit union will offer you a loan
- Consider extending your overdraft – it’s usually cheaper than a payday loan
And if you’re still determined to get a payday loan, he advises the following:
- Borrow as little as possible and budget to repay as soon as possible
- Don’t take out one personal loan to pay off another. If you regularly get payday loans, there’s a problem
- Always check that a lender is registered with the Financial Conduct Authority (FCA). Payday lenders can be bad – loan sharks are MUCH worse.