The Price of Payday Loans at Christmas
The most wonderful time of the year is also feared by many families as they face pressure to buy Christmas presents with cash they don’t have.
Those who have the luxury of credit cards or an overdraft they can dip into, may have a sleepless night worrying about the affordability of the monthly repayments come January when the credit card statements hit the door mat but where do those without that line of credit turn to buy the games console and the expensive trainers all their kids friends have? All aboard the guilt trip train.
Last Christmas the Money Advice Service reported that the top 5 reasons given for over spending at Christmas were;-
Pressure to please other people 51%
Wanting to give children the perfect Christmas 47%
Being tempted by special offers/deals 29%
Desire to buy their child the must have gadget 19%
Not knowing how to budget and losing track of spending 13%
The simple answer would be to spend within your means and just say no – but with the guilt that comes part and parcel with saying no to a child’s dream, Christmas is just too much to bear for most. So you’re sitting quietly, contemplating where you will magic these gifts from when out the corner of your eye, the payday lender appears on the TV like a greedy fairy godmother filled with promises to make all your children’s Christmas wishes come true…. at a price.
Take last year, there was a 39% increase in the number of people seeking online help with debt problems between 26 December 2013 and 2 January 2014 from the previous year. As Citizens Advice reported in January 2014, over 23,800 people turned to them for support.
The Financial Conduct Authority has implemented new rules which payday lenders must abide by. It is estimated that 70,000 people will no longer be eligible to these loans due to a new affordability check. Although these changes don’t come into force until 2nd January 2015, those hoping to clear their Christmas debt or subsidise their wage in January with a payday loan due to Christmas overspending may need to think again.
The new rules when it comes to charges and interest are welcomed and with the FCA closing down unregulated companies, this will go some way to protecting vulnerable clients who have previously been taken advantage of.
In 2013, according to the Money Advice Service, more than 1 million consumers (2.44%) planned to take out a pay day loan last Christmas.
People spent £487 on Christmas 2013 compared to £508 the previous year and 1 in 10 people were still paying off what they spent on Christmas 2012, 10 months later.
This research, published in November 2013, also highlighted that although 42% said they were happy to cut back on other costs to fund Christmas spending, more than a quarter (27%) admitted getting carried away and spending more than they could afford.
With this in mind, everyone should think twice before applying for a payday loan and remember that unless you can afford to repay back the debt plus interest in full on your next pay, then avoid this type of loan at all costs.
In the first 6 months of 2014 Stepchange Debt Charity helped almost 13,000 more people with payday loan debt than in the same period the previous year. That amounts to over £72 million worth of payday loan debt compared to £51 million.
|Number of people with payday loan debt||30,762||43,716|
|Total payday loan debt handled by Stepchange||51,277,222||72,210,340|
|Average total payday loan debt per client||1,665||1,652|
|Total number of payday loan debts handled
Payday loans may seem like a quick and easy fix but consumers should stay clear of the ‘apply now, worry later’ approach and ask themselves is it really worth it. The kids may not be happy that they didn’t get exactly what they wanted but think how miserable the whole family will be in the coming months or years with debt you can’t afford hanging over your head.