THE DIRE state of many Britons’ personal finances has been underlined by new research that shows 3.5m people are considering taking out payday loans over the next six months.
Concern over personal debt has reached the highest level since insolvency body R3 began making records, it said yesterday as it warned of “zombie debtors” who are only paying off interest rather than the debt itself.
Payday loan companies have been criticised for charging annual interest rates of up to 4,000 per cent. Frances Coulson, president of R3, said people across all socio-economic groups face a “debt hangover” which is worsening because of rising unemployment and increased spending in the run-up Christmas.
“Many who take out payday loans find them to be a negative experience, often escalating financial troubles.”
MPs and consumer groups have called for a tightening of laws on payday loan firms, although this has raised fears it could push the poorest people toward illegal loan sharks.
Sarah Brooks, director of financial services at Consumer Focus, said: “Much more needs to be done to prevent consumers getting caught in spiralling debt.”
A spokesman for the coalition said it was aware of concerns and that ministers are working with the industry and consumer organisations to ensure people are protected.
Industry group the Consumer Finance Association said firms provide an alternative to bank charges on unauthorised loans and described the 2,000 person sample size in the R3 survey as “not credible”.
FAST FACTS | PAYDAY LOANS
● Nearly two thirds (60 per cent) of people in Britain are worried about their level of debt
● The number of people who say they have no savings has hit 27 per cent, up from 19 per cent in the last quarter. Source: R3