The number of people resorting to short term loans to boost their monthly finances has increased more than 130 percent since August last year. These types of loans are typically taken out to tide people over from one pay day to the next, and have increased dramatically due to the number of households no longer able to meet the monthly bills.
Typically available to people who earn more than £750 pounds a month, these types of loans are attractive to people who are struggling financially as they provide an immediate solution to putting food on the table and paying the bills. However whilst these types of loans might provide temporary financial relief, they often have exhorbantly high interest rates which can just exacerbate money problems further.
Companies, such as Payday UK, and Payday Bank offer these short term loans usually up to a value of one thousand pounds. Those who take out these loans then have the amount of the loan and the interest deducted in full from their bank account on their next payday. The amount of interest charged ranges with Payday UK stating that for every one hundred pounds borrowed one hundred and twenty-five needs to be repaid where as Payday Bank’s terms are one hundred pounds repaid for every eighty pounds borrowed. This equates to an annual percentage rate of around 1,355 percent, which is a huge amount especially when compared to average interest rates for credit cards and bank overdrafts being between fifteen to twenty percent.
These types of loans have been condemned in America for making the housing crisis and credit crunch worse, and now people are beginning to fear the same for the UK. The huge growth in the number of people using these types of loans is worrying, as it indicates that more people in the UK are struggling financially which could lead to further debt problems. The whole process of taking out a short term loan means that your bills are paid that month but people are then left short again the next month when the bills land on their doorstep again. Paying the price of the additional interest on a short term loans means that households are paying even more to cover their monthly costs than if they hadn’t used the loan. Those people who can’t find a means to cover the cost of the interest could fall further into debt.
Finding ways to overcome the problem of spiraling debt in the UK is a difficult task. The credit crunch has taken its toll on a large number of families living in Britain and for many rising living costs and increased mortgage repayments are forcing them to seek other ways of meeting their monthly bills. Short term loans do provide one way of getting cash when it is needed most and although the rates of interest are astronomically high for those people unable to get credit elsewhere, they provide a possible solution.
Danielle is an author of several articles pertaining to Personal Loans. He is known for his expertise on the subject and on other Business and Finance related articles.
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