Sunday, 9 October 2011

The problem of payday loans

Would you ever take out a loan where the APR was 4214%?

Thought not but 4214% is the representative APR shown by Wonga.com on their homepage as being typical interest rate.

Have you ever heard of Wonga.com?

Possibly not, but Wonga is a typical example of one of a large number of payday loan companies designed to service that ever increasing sector of the market outside normal credit services who find themselves not being able to make ends meet until payday.

For want of a better description, actually thinking about it it's a perfectly valid description. Wonga (and others) are legal loan sharks.

The big concern is that the number of people not being able to make ends meet is growing significantly.

Noone knows the exact figures but here is an example.

In 2009 1.2 million people took out 4.1 million payday loans amounting to £1.2 billion.

In 2011 Dollar Financial, which owns the high street payday loan chain The Money Shop said that their high street network could expand from 350 shops to 1200.

Payday loans are not sustainable and effectively when you are in debt up to your neck they just manage to pull you all the way under.

Of course the economy is worsening, more so for the poorer in society.

Of course we need to turn people to more ethical financial products, such as credit unions.

But most of all we need to say that such levels of APR are not socially acceptable.

Stella Creasy is Labour MP for Walthamstow and is working hard to address this issue. If you want to know more (and what you can do) you can read a much more detailed explanation of the problem by clicking here .

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