Warning over pay day loans

0
Have your say

DEBT counsellors are warning South Holland residents against taking out so-called pay day loans as a way of paying for Christmas.

The loans are small short-term unsecured loans designed to tide people over until they get their next pay, but South Holland Citizen’s Advice Bureau fears they could be a step on a slippery slope into debt for some.

Last week a group of insolvency experts claimed that millions of people across the country are likely to take out a payday loan in the next six months as the financial climate continues to bite.

Although the scale of the problem was disputed by the Consumer Finance Association, Downing Street has said it is trying to bring in an industry code of practice to regulate short-term lenders.

In South Holland, the CAB said it has already seen a number of clients who have fallen foul of the money-lending and have been forced to seek advice to avoid the debt trap.

Manager Diane Clay said: “A pay day loan company offers you cash to sort out your short-term money problems. In exchange you need to pay the loan back on your pay day, plus fees, which can often be quite high.

“If you don’t have enough money to pay the loan back on your pay day, the fees and charges can quickly start to mount up.

“And a loan company can come after you to try and get their money back.”

Mrs Clay gave an example of how quickly a payday loan can lead to financial disaster.

She said: “To use this type of loan successfully you have to make sure you have enough money coming in the next month to not only cover what you borrowed, but also to bridge the shortfall you had the first place.

“For example, if you earn £1,000 but spend £1,200 you need to borrow £200. Next month you have to have an income of £1,450 to cover the loan and interest and prevent the need to get another loan, so you need to find £450.”

Instead, anyone looking for a small amount of cash to tide them over is advised to look at other cheaper options, such as asking their bank for an overdraft.

Mrs Clay said: “If you do that you need to ensure you stay within the agreed limit.

“You could also look at other ways to borrow money on lower interest, and we would recommend your local credit union.”

And she advised anyone who is struggling to make ends meet every month to contact the Citizen’s Advice Bureau sooner rather than later to get help with budgeting and dealing with debts.