Payday Lenders Are A Growing Phenomenon

The credit crunch is prompting more people to go to payday lenders, according to an advice organisation.

A spokesperson for the Consumer Credit Counselling Service (CCCS), described these kinds of loans as a "growing phenomenon" as consumers - particularly those who are less well off - are finding it more difficult to get credit elsewhere.

She explained that the CCCS is concerned about the practice of rolling loans over from month to month, which can take a significant amount of money out of person's net income, especially those who are "not very well or don't have a lot of money".

A payday loan is usually defined as a small short term loan that is intended to cover a borrower’s expenses until his or her next payday. The loans are also sometimes referred to as cash advances. As the loans are specifically for short amounts of time the interest rates can be extremely high.

In the UK there is no prohibition on “rolling over” lending. This means that if the loan is not fully repaid at the agreed time it can be carried over to the next month. However, with the high rates of interest the practice of “rolling over” is not recommended as the amount repayable becomes extremely high very quickly and this can cause even more problems to someone who is already in financial straits.

Young people who have not built up a credit record are also more likely to apply for payday loans - and lenders are taking advantage of this by advertising on social networks sites such as Facebook.

In the UK there are strict guidelines about advertising payday loans which are covered by the Consumer Credit (Advertisements) Regulations 2004. In particular, the “typical APR” must be stated in adverts which meet certain criteria, such as those which indicate credit may be given to customers who may otherwise find access to credit restricted.

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