Pay-day loans are now being widely used across the UK, in fact 2 Million people across the UK were using pay-day loans in 2011. Most of these businesses promote themselves as helpful organisations which are there to lend a hand when their customers are in need. The truth is that most of the companies issue loans which have interest rates of more than 1000% APR, this is causing many customers to go into debt spirals as they cannot afford to payback these huge interest rates.
Due to the current economic conditions in Britain such as the high unemployment and increasing inflation, it has left many citizens "cash strapped". The CPI index has increased massively since 2011 and unemployment has also increased. This is causing many people to not have sufficient funds to pay for house bills and also basic goods.
In a recession these type of businesses thrive, as they are preying on the cash strapped citizens who need money quick in order to pay for bills. These companies also prey on uneducated citizens who don’t understand the basic principles of interest rate loans. Even if the company's show the interest rate in plain view many people over look that as they might not be educated or they are too caught up in their own economic problems. These companies may promote a "cuddly" corporate image as caring companies but they are only after the profits they can gain from unsuspecting customers.
The pay-day loans industry has expanded massively during the years of the recession and is now worth a staggering £2.2B. These companies may boast big profits to their shareholders but it is only by charging hideous interest rates to the uneducated people of this country that they are able to create such high profits.
These companies have caused many customers to get into huge debt spirals, where they owe sums of money sometimes up to £10,000 for only taking out a small amount. The reason why this is occurring is because when unexpected customers take out these loans there are not understanding how much they will have to pay back, this causes a shock to the customers and as they probably cant afford the repayments they have to take out another loan. Before too long this puts customers into serious debt problems which causes many people to lose their possessions or even in some cases commit suicide
These companies have been allowed to be set up as there is actually no restriction on the interest rates which these companies can charge. As long as they show how much the interest is on the loan then its okay for them to charge it.
Sadly these are the types of companies which sprite up in these harsh economic times. I believe that the only way forward is more financial education for both adults and also children. This will mean that future generations will be more aware of these companies and will think twice before taking out pay day loans in the future.
I also believe that if these companies continue to operate there should be more transparency across the whole industry. As all customers should be told the exact amount they will have to pay back including the interest.
Daniel Butler
References : Guardian, Trading Economics, BBC ,sqmagazine
No comments:
Post a Comment