A staggering six out of every ten payday loans are paid back late according to pay day loans company PayDayAdvances.net
The continued recession coupled with stricter lending criteria has meant the loans are becoming the monthly norm for many, as they cannot afford to pay them back straight away.
Payday loans are designed to offer a temporary source of cash until the borrowers next pay day, but for many it is taking longer to pay back the loans. A recent report by consumer advocate Which? showed that nearly 40% of borrowers use payday loans for everyday essentials like food and fuel, while 20% use them to make sure the rent or mortgage is covered rather than for one off expenses.
A spokesperson for pay day loans Company PayDayAdvances.net said: “It is unclear whether people take out the loans knowing they will not be able to pay them back or genuinely believe that their situation will improve by pay day and paying it back will not be a problem.
“The ideal scenario is that people use our loans for what they were intended – a short-term loan of cash for a few weeks to tide them over – and ensure that the costs of borrowing are kept low. We have no doubt that the majority of our customers intend to do that and they do pay the loan back on time. But for an unlucky few it just doesn’t work out that way for one reason or another and that has in part been driven by the economy.”
As the pay day loans market has matured and the economic crisis deepened, pay day loans have become a vital source of cash to cover rent increases, rises in food and fuel costs, and lower salaries and periods of unemployment.
A spokesperson for Which? said: "It's shocking that half of all people taking out payday loans have been unable to pay the money back and it's a depressing sign of the times that almost a third were hassled by debt collectors in the past year.”
The payday loans industry first emerged in the UK in 2006 but it wasn’t until the recession that they became popular. The rigid crackdown on lending by banks and the resulting credit crunch suddenly denied access to much needed funds as incomes dropped and food and fuel prices rose.
“Without Pay Day loans it is unclear what the alternatives are for short-term cash if somebody needs it,” said PayDayAdvances.net. “There was a time when you could ask a friend or family member to help you out, but due to the recession your friends and family are all in the same boat as you. Without pay day loans, the only other option to get cash is loan sharks, and their appalling reputation is well-deserved.”