Rise in payday loans show credit problems still to come

June 26, 2008

Consumers are increasingly turning to short-term loans charging interest of more than 1,000 per cent to tide them over until they get paid. The number of so-called payday loans taken out by Britons has more than doubled in the past ten months as shoppers struggle to cover their monthly bills, figures calculated for The Times show.

Payday lenders, such as Payday UK, Express Finance and Pounds Till Payday, offer loans of up to £1,000. Payday UK demands that £125 be repaid for a £100 loan, or £937.50 for a £700 loan. The loan is usually paid off within a couple of days, as soon as the borrower's wages are paid into their account.

Payday lenders UK, said that the typical annual percentage rate (APR) for its deals was 1,355 per cent. The typical rate for a credit card is 20 per cent, while a high street bank charges about 18 per cent on an overdraft.

The growing strain on British shoppers was highlighted by the monthly CBI distributive trades survey, which showed that 9 per cent more retailers reported a fall rather than an increase in sales this month. This was an improvement on April and May, but the CBI gave warning that there were torrid times ahead for high street retailers. The findings are at odds with official data out last week that showed a 3.5 per cent surge in retail sales in May, powered by clothing sales. Analysts suggested that next month's official data would be much weaker.

Source: business.timesonline.co.uk