The horrifying new trend in payday loans
Researchers have discovered a worrying new trend in the way that people are using payday loans. Most people aren't turning to them in cases of real emergency, when an unexpected expense has thrown them off the straight and narrow.
The majority of people need these loans just to meet everyday costs.
Everyday expensesThe think tank, the Institute of Public Policy Research (IPPR), found that the most popular use of a payday loan is for everyday expenses like groceries, gas, electric and water bills. They discovered that 41% of people are using payday loans to pay for groceries, while 32% are using them to pay utility bills.
The researchers also found that younger people are three times more likely than older people to use them to pay for a night out, and five times more likely to pay for their mobile phone bills with a loan.
Mathew Lawrence, Research Fellow at IPPR, said: "The fact that people are using payday loans to cover predictable expenses shows that it is not a financial planning problem they face but a problem of making ends meet."
WorryThe reason this gives rise to so much concern is that it leaves people with no room to pay off their debts. If the reasons for taking a loan were just things like Christmas or a broken-down car, then people can cut back in subsequent weeks in order to pay back the money quickly without incurring too many extortionate extra charges.
However, when people simply don't have enough money to feed themselves and keep their homes warm, then there's nothing left to cut back on. The first time you get a payday loan for these costs you may need to borrow £50 because your outgoings are £50 more a month than your income.
However in the second month, you will need to pay the money back (and your enormous interest fee) so your outgoings are going to be more than £100 more than your income. And each month your problems will intensify.
The IPPR says that the solution is better alternatives to expensive payday lenders, which offer more affordable lending. It adds that banks need to become more accessible and flexible, while credit unions need to do more to modernise their services.
But what do you think? When people's everyday spending is simply much more than their income, can there ever be a workable solution - no matter how cheap borrowing becomes? Or do we all need to embrace a new frugal life, without so many of the things we have come to regard as essentials?