How Payday Loans Affect its Borrowers?

Payday loans are easy to obtain, but they may cause more harm to your mental and financial stability. This kind of short-term lending is not a new terminology, it dates back to the mid-1700s. According to a report published by the Office of Fair Trading, the payday loan market has shown a commendable growth. From 900 million Pounds in 2008, it rocketed to a staggering 2.0 billion Pounds in 2012. Currently, it stands at a 2.8 billion Pounds worth of lendings.

There are 90 payday lenders across 1238 locations in the UK, with an employee strength of more than 4800 people. So, the industry strength has seen new heights and advances in the previous decade.

In 2013, about 10% of the UK’s adult population, i.e. 4.6 million individuals (approximately), applied for a payday loan. In return, 10 million payday loans were given out to 1.6 million people successfully. And according to a research by the FCA, 4.1 million people in the UK are in serious financial difficulties already.

When we look at the data from the past 5 years, 52% payday loan customers have experienced debt problems, 38% incurred a bad credit rating, 35% had to make an arrangement with the creditors, 11% people were issued a County Court Judgement and about 10% were visited by a debt collector. Payday loan providers are known to make this product available to low-income households, who are facing debt problems after obtaining it. In the longer run, this encourages an irresponsible lending culture. And all this pushes these consumers into a long-term debt spiral of consequences.

The major portion of the payday, 53.4%, is contributed by the people who are 26-45 years old. After a major increase in unemployment among the young generation of Britain, a payday loan, which primarily covered financial emergencies is now being used as a basic utility for obtaining funds. More and more individuals are relying on to these loans for primitive needs these days. It has become a source of income altogether, which is handled and disbursed less responsibly.

A surge of complaints and PPI claims against these payday loans followed this scenario. To recuperate from such times and to save the lenders and borrowers from situations like bankruptcy and meltdown, the FCA intervened. It imposed strict and stringent capping mechanisms on the amounts that can be borrowed and on the interest rates charged.

This capping and regulation came out to be successful. After these precautionary measures, the number of complaints decreased substantially. The number of timely repayments of these loans increased and moreover, there was an increased sense of awareness that was prevalent among the citizens of Britain.

Reports also stated that at least 28% of the payday loans in 2011 were rolled over (continuation of a loan) and about 5% people renewed these loans more than 4 times. Such loans do not actually help these individuals to the desired extent, but it may cause more damage to their financial condition and kind of traps them in a cycle of debts.

More reports about a payday loan say that it causes the consumers to take additional credits to cope with its consequences. Making it more of a burden on your finances than heaping them down. This occurrence was seen within 6 months of a payday acceptance. Apart from these issues that tail a payday loan, there were minor delinquencies reported. Consumers defaulted on the other credits they held and basically, it hampers other social and financial aspects of a consumer.

According to various studies, applying for a payday loan worsens your credit score, but its usage and handling it responsibly does not help or improve your credit-worthiness. Structurally, it is a loan that causes more damage to your financial stature than amplifying its worth.

A new report from the “Royal Societies for Public Health” says that payday loans cause impact on the mental health of its consumers. A person takes out further credits to contain the previous and trailing debts, causing more trouble and trauma to his mental autonomy. Hence, a payday loan is not for all and everything, it’s for specific needs in specific situations.

Another severe issue that came out was “child poverty” in the UK. Due to payday loans, “child poverty” in Britain has reached a record high of 30% since 2010. Parents who get stuck in such circumstances are not able to provide for their kids. They have to choose between putting the food on the table and providing the basics of childhood to their children. Which caused this increase in the poverty rates of a child.

Lenders like Wonga, whose business model collapsed recently, was one such name who was leeching on such people around. The downfall of this payday giant was led by numerous claims and complaints against it. Further, to counter it, they introduced an adjudication tool to process and assess these complaints. Putting the consumers in a disadvantageous situation. They’re likely to lose the case and these claims.

Hence, you must shop around properly before choosing a loan. Not every product is suitable for your needs and a brokerage service can be helpful in such times. They provide various other unsecured loans as well, loans with different elementary aspects. Aspects which may be more appropriate to your needs and can help you in a better manner.

In all such cases, a regulated brokerage service, that categorises and matches your needs to the products available is necessary. Loan Princess is one such entity that we suggest. They are regulated by the FCA and are capable of providing suitable loan products for your needs and requirements. They do not force you to opt a product like payday just because it is more profitable, but they assess your needs and showcase different options available to you, with different lender associated with them.

So visit Loan Princess and visualise the goodness of regulated loans in the UK.