A survey conducted by guarantor loan provider Amigo Loans reveals that from almost a quarter of the UK adults that have been turned down by banks when trying to obtain credit, four fifths have resorted to alternative forms of credit, despite the higher interest rates they charge.
The survey also revealed that that the preferred alternative credit form was the payday loan, due to people’s increased awareness of it. 75% of the people who took part in the survey knew about the payday loan as an alternative, while they seem to be pretty much in the dark regarding other solutions.
One of the representatives of Amigo commented that ‘The majority of Britons are only aware of payday lenders who offer loans at ridiculous rates, and these are likely to lead consumers into even more financial difficulty.”
He also highlights the fact that there are other better options and that one must consider this before “being forced down the payday route”.
The unfair practices of some payday lenders has raised concerns and led to the industry being recently subjected to an Office of Fair Trading Probe. The main accusation is the exorbitant value of their interest rates that go up to 100% APR, that will continue to increase when “rolled over” from a month to another.
As a result, measures have been taken. The OFT sent letters to 50 lenders asking for the necessary improvement in their business practices and almost a third of those had stopped lending.
In order to help debt-struggling people and offer them less burdening credit alternatives, the Government is trying to increase awareness of credit unions – non-profit cooperatives that are centred around a community in a certain area, workplace or industry. The affordable loan rates they offer help people save money.
One of the typical example of debt struggle worsen by payday loans is the story of 23 year old Daniel Clarke. He no longer had any money left for his living expenses at the end of the month because all the money went towards debt repayments. Therefore, he took short term loans with high interest rates as he thought it was a solution. However, things didn’t work out that well, he says: ‘I ended up having to go to Wonga to have some money for general living. Taking this out was a dangerous affair and generally speaking, with such high rates you can then find yourself stuck in a cycle relying on payday loans, something I very much wanted to avoid.’
Even though you are facing debt problems, you should consider solutions that won’t force you down the debt spiral. As Daniel’s case shows, further debt is not one of the best solutions.
In reality, there were many options that Daniel had, he could have researched for a loan provider that had more accessible interest rates, take a long term loan, but also, given the situation, he could have also try entering a Debt Management Plan or IVA, that could have helped him manage his debt repayments and finances better.