Warning on soaring payday loans
The number of people resorting to expensive payday loans has soared during the past month as consumers struggle to make ends meet in the face of rising living costs and stagnant wage growth, research has suggested.
Financial website moneysupermarket.com said it had seen a 58% increase in demand for the loans since the May Day Bank Holiday, compared with the same period of April.
The group blamed the rising cost of living, as well as the recent run of bank holiday weekends, for strong demand for the loans, which enable people to borrow small sums - often of as little as £75 - for short periods of time to tide them over until they are paid.
But it warned consumers to make sure the product was the most appropriate way for them to borrow money, as the loans can be expensive, with annual interest rates equivalent of around 2,000%. Someone who borrows £100 through one of the loans can expect to pay back around £125, often within 31 days.
Tim Moss, head of loans and debt at moneysupermarket.com, said: "It's no surprise to see the demand for payday loans rise so sharply in the current climate, and particularly around bank holiday periods when people have been spending more.
"These products act as a barometer, giving a unique insight into the state of the nation's finances, and as people continue to feel the pinch, we can expect to see the popularity of these products continue to increase."
He said because the money was only borrowed for a short period, expressing the charges as an annual interest rate made the costs involved appear "exorbitant", but he said for people who needed money quickly, taking out one of the loans was often cheaper than going into unauthorised overdraft.
But he added: "The use of payday loans comes with a huge caveat. There is a real danger that customers could fall into a spiral of debt where they have to take out a loan each month just to make ends meets.
"Borrowing £100 one month means paying back £125 the next and anyone struggling to stay out of the red could find that taking out a payday loan ultimately makes the problem worse.
"Payday loans are not suitable for customers looking for longer term credit or unable to pay off the debt within a few days."