A payday lending charter has been launched today – but Citizens Advice says it has seen a ten-fold increase in people with payday loan problems.
The Good Practice Customer Charter on Payday and Short-term loans comes in today, with the aim of increasing consumer protection.
But according to figures from Citizens Advice Bureau (CAB), there has been an increase in the number of serious debt problems it has seen that are down to payday loans.
Payday loans are high-cost short term loans that are often used by people who cannot get finance from other sources. Payday loans usually offer small amounts which initially are meant to be repaid within a few weeks. But often, borrowers roll over loans for longer, resulting in huge annual interest rates.
CAB said it has seen a ten-fold increase in the number of clients with multiple debts including a payday loan debt in the last four years. Around 10% of its clients now have at least one payday loan.
The new code, which covers more than 90% of the payday loan industry, is voluntary. It contains a commitment to explain to clients how payday loans work and the costs involved, as well as checking whether customers can afford loans and helping those in financial difficulty by freezing interest and charges.
Gillian Guy, chief executive of Citizens Advice, said that it is particularly concerned that Christmas will mean “even more people may see payday loans as a way to get by, leading them into a spiral of debt”.
Despite the best credit card deals being reserved for those with good credit records this doesn’t mean that it’s impossible for those with less good credentials to get cards.
There are a number of credit repair cards which even though they have high interest rates, are still much lower than on payday loans. In addition, if you do keep to your monthly repayments then you will improve your record and should be able to get a mainstream credit card after a while.
The best deal at the moment is probably Barclaycard Initial, which offers three months interest-free on purchases and an APR of 29.9%.