Martin Lewis has offered advice to families turning to payday loans amid the cost of living crisis.
A new survey has found that rising energy, fuel and grocery costs coupled with worries about paying household bills are driving a rising demand for payday loan interest to make ends meet.
Experts warn that payday loans can be a bad way to make quick money and a dangerous way down, despite the short-term relief they seem to offer. Internet search for payday loan increased by 350% in past 12 months, research by savings platform Raisin UK shows.
CONTINUE READING: Martin Lewis says he’s running out of tools to make ends meet
From April 1, households will face a record 54% rise in energy bills after regulator Ofgem raised the cap on standard tariffs to £1,971. Drivers continue to be plagued by record fuel prices as petrol hits an average of £1.65 per litre.
Kevin Mountford, co-founder of Raisin UKwarned against it Payday loans can be a dangerous route, despite the short-term relief they seem to offer. He said: “It’s easy to get into a debt cycle with these systems when you’re constantly asking them to cover deficits. With interest rates rising, you will most likely struggle financially with payday loans, especially as you will owe these companies an ever-increasing amount of money.
Payday loans are short-term loans for relatively small amounts of money. They can be easily accessible, but interest rates are very high. You work by agreeing that the company can collect its payment from your debit card on the day your next paycheck is due, although some lenders allow you to pay over a longer period of time – often up to six months.
For some, they offer loans of last resort which, if used properly, can plug unexpected holes in people’s finances, although according to MoneySavingExpert Martin Lewis, many of these loans have been irresponsibly given out and mis-sold to those who could not afford to repay them, ChronicleLive reports.
Dozens of bad credit lenders have gone bust, including big-name payday lenders like Wonga and QuickQuid, leaving customers with legitimate claims with significantly reduced payouts.
Citizens Advice agrees with Martin Lewis that payday loans are almost always a bad idea and has warned against seeing them as a quick fix to solve today’s problem.
Martin Lewis has advised people to try the following ways to get short-term cash before applying for a payday loan:
- A credit card offers interest-free spending if you pay it back in full. With a 0% card, you can pay interest-free for longer.
- Check if you are eligible for 0% government household loan from up to £812
- Ask the family for help
- Check to see if your local credit union will offer you a loan
- Consider extending your overdraft — it’s usually cheaper than a payday loan
And if you’re still determined to get a payday loan, he advises the following:
- Borrow as little money as possible and pay it back as quickly as possible
- Don’t take out a payday loan to pay off another one. When you get regular payday loans, there is a problem
- Always check that a lender is registered with the Financial Conduct Authority (FCA). Payday lenders can be bad – loan sharks are MUCH worse.