Spiralling costs and worries about paying bills have led to a surge in interest in payday loans, a new survey has found.
Research by savings platform Raisin UK has revealed a massive 350% hike in internet searches for payday loans over the past 12 months, as the nation faces a cost of living crisis and families struggle to make ends meet. Household budgets are being squeezed every way, from petrol hitting a UK record high of £1.55 per litre last week to spiralling food prices at the supermarket - and that's before the new energy price cap kicks in next month, when the average family will have to find nearly £700 extra each year just to pay their energy bill.
Kevin Mountford, Co-founder of Raisin UK, cautioned that payday loans can be a dangerous road to go down, despite the short term relief they may seem to provide.
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"It is easy to fall into a cycle of debt with these schemes if you continually require them to cover shortfalls. With rising interest rates, payday loans will most likely leave you struggling financially, even more as you will owe these companies a continually growing amount of money," he said.
Payday loans are short-term loans for relatively small amounts of money. They can be easy to access, but interest rates are very high. They work by you agreeing that the company can take its payment from your debit card on the day your next salary payment falls due, though some lenders will allow you to pay over a longer period – often up to six months.
For some they offer lending of last resort which, used right, can solve unexpected holes in people's finances, although according to Moneysavingexpert Marin Lewis, many of these loans have been handed out irresponsibly and mis-sold to those who couldn't afford to repay.
Dozens of bad credit lenders have gone bust, including big name payday lenders such as Wonga and QuickQuid, leaving customers with legitimate claims getting significantly reduced payouts.
Citizens Advice agrees with Martin Lewis that payday loans are almost always a bad idea, and have warned against people seeing them as a quick fix to solve today's problem.
Martin Lewis has advised people to try the following ways to raise short-term cash before applying for a payday loan:
- A credit card offers interest-free spending, if you pay it off in full. A 0% card gives you even longer to pay with no interest.
- Check if you're eligible for a 0% government budgeting loan of up to £812
- Ask family for help
- See if your local credit union will offer you a loan
- Look into extending your overdraft - it's usually cheaper than a payday loan
And if you are still determined to get a payday loan, he advises the following:
- Borrow as little as possible and budget to pay it off as soon as you can
- Don't take out a payday loan to repay another. If you're regularly getting payday loans there's a problem
- Always check a lender is registered with the Financial Conduct Authority (FCA). Payday lenders can be bad – loan sharks are MUCH worse.
