The data from a new study compiled by the insolvency trade body ComRes
and analysed by R3, the Association of Business Recovery Professionals, suggests that a quarter of young adults will take out a Payday loan within the next six months to make repayments on debts. Around 3.5 million UK adults indicated they would be taking out a Payday loan during the first half of 2011, and this year the figures have increased by 40% to 5 million individuals.
Typically, short term payday loans
are traditionally used for one-off financial emergencies, however R3 claims a trend is emerging where they are being used for debt payments, including previous Payday Loans
, as well as essential food and bills.
R3 council member Louise Brittain said: œIf used in the right way a Payday loan does have a place. However they are increasingly being taken on as a debt solution instead of a financial solution. We know from last year that one in three couldn't pay off the first Payday loan so had to take out another one “ and now 12% of 18-24 year olds have prioritised paying back this debt over buying food in the past six months. This is surely not what the Payday Loan providers
While concerned by the findings, some members of the Payday loans industry don't necessarily agree that the higher demand for loans is due to individuals wanting to repay debt.
A spokesperson for Payday Loan Company PaydayAdvances,net said: œPayday loans are popular and will continue to be due to their ease of use and ease of access. People don't have to make an appointment with a bank adviser for a ˜financial review' if they need to find extra money for something. They don't have to justify why they need the extra few pounds or feel embarrassed having to ask for it and risk rejection.
Russell Hamblin-Boone, chief executive of the Consumer Finance Association
(CFA), which represents Payday loans lenders also believes it is the convenience of Payday loans that makes them popular, but is concerned if heavily indebted borrowers are managing to obtain the loans in light of the new Good Practice Customer Charter.
œThe CFA's new customer charter updates a previous customer charter introduced in 2011 by former CFA chief executive John Lamidey. Our members are committed to lending responsibly and to delivering significant new protections for consumers through the new Good Practice Customer Charter
. Clear explanations, robust affordability assessments and help for any customers in financial difficulty are the bedrock of the Charter, which comes into force on 26th November.
The latest version of the CFA's charter has put greater emphasis on Payday loan costs, structure, affordability checks and guidelines for dealing with customers who cannot pay back their loans.