Spiraling costs and concerns about paying bills have led to a spike in interest in payday loans, according to a new survey.
Research by savings platform uk of raisins has revealed a massive 350% increase in internet searches for payday loans in the past 12 months, as the nation faces a cost of living crisis and families struggle to make ends meet. Household budgets are shrinking in every way, from petrol hitting a UK record of £1.55 a liter last week to food prices in the supermarket, and that’s before it goes into The new energy price cap comes into effect next month, when the average family will have to find almost an extra £700 each year just to pay their energy bill.
Kevin Mountford, co-founder of uk of raisinswarned that Payday loans can be a dangerous road, despite the short-term relief they seem to provide.
Read more: Explanation of the energy price cap
“It’s easy to fall into a cycle of debt with these schemes if you continually require them to cover shortfalls. With interest rates on the rise, payday loans will most likely leave you in financial straits, even more so if you owe a these companies a constantly growing amount of money,” he said.
Payday loans are short-term loans for relatively small amounts of money. They may be easily accessible, but the interest rates are very high. They work if you agree that the company can take your payment from your debit card on the day your next paycheck is due, although some lenders will allow you to pay over a longer period, often up to six months.
For some, they offer loans of last resort that, well used, can solve unexpected gaps in people’s finances, although according to Moneysavingexpert marin lewismany of these loans have been given irresponsibly and mis-sold to those who could not pay.
Dozens of bad credit lenders have gone bankrupt, including big-name payday lenders like Wonga and QuickQuid, leaving customers with legitimate claims getting significantly reduced payments.
Citizens Advice agrees with Martin Lewis that payday loans are almost always a bad idea and has warned that people don’t see them as a quick fix to solve the current problem.
Martin Lewis has advised people to try the following ways to raise short-term cash before applying for a payday loan:
- TO credit card offers charges without interest, if you pay it in full. A 0% card gives you even more time to pay without interest.
- Check if you are eligible for a 0% government budget loan up to £812
- ask family for help
- See if your local credit union will offer you a loan
- Consider extending your overdraft; is generally 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 pay it back as soon as possible
- Don’t take out one payday loan to pay off another. If you get regular payday loans, there is 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.