Increasing numbers of people unable to access credit through the traditional banking system are turning to borrowing from alternative sources, including so-called payday loan companies.
Payday loans are short-term loans usually repaid on the customer’s next payday. These loans are becoming a popular means of avoiding bank overdraft and credit card charges.
However, Cardiff Council’s Trading Standards is warning people that this type of borrowing isn’t suitable for those looking to repay their loans over a long period. They’re designed as short-term loans to deal with short-term personal cash flow issues – if loans are rolled over, debts could escalate. Consumers are being advised that they should only take out this type of loan if they are confident that they’ll be able to repay the debt in full when it is due.
Deputy Leader of Cardiff Council, Councillor Judith Woodman, said: “In the current climate with job losses and wage cuts many people may be tempted by these loans thinking that they will be able to pay them back quickly. If this does not happen the cost of a small emergency loan can become astronomical. These loans can seem like a handy solution, but they can be extremely costly – there are much cheaper and safer options available.”
For those considering using a payday loan company, the Citizens Advice Bureau and the Consumer Financial Education Body recommends you look into all available alternatives first, such as:
- discussing your options with your bank manager as you may be able to get an agreed overdraft
- looking into Social Fund Loans – these are government-funded, interest-free loans available to those on low incomes
If you have no alternative to a payday loan make sure:
- you fully understand the costs and charges involved
- you don’t borrow more than you can repay or for longer than necessary
- the lender is licensed by the Office of Fair Trading
You can find out more about managing debt in the Money, tax and benefits section of Directgov. For more on debt advice and information contact the Citizens Advice Bureau at www.citizensadvice.org.uk or the Money Advice Service at www.moneyadviceservice.org.uk/ or the Consumer Credit Counselling Service at www.ccs.co.uk
