Members of Parliament have created a new law which will give industry regulators the power to cap the annual interest rate payday lenders can charge.
Prior to this ruling some payday lenders are charging up to 5,000% annual interest on their loans. The demand for Payday loan companies has increased as the availability of other more affordable credit has been reduced. However, this form of credit comes with a warning.
Borrowing £100 and repaying £125 seems like a great deal for a short term debt problem, however, the average payday loan is considerably larger (£300). If this debt is not repaid on time then there are fees and charges which will be applied. Over a short period of time the debt can swiftly increase if it's not repaid on time.
The Financial Conduct Authority will have the responsibility to cap fees and charges but these are not likely to take place until 2014. However, there are no plans to minimise the number of rollover periods.
Don't Borrow For Christmas
With Christmas just around the corner it's expected record numbers of people are going to borrow money from a payday lender to afford their Christmas.
The short term benefit of Christmas can often mean months of repaying the debt, or worse still, to afford the payday loan you may have to borrow on top of debt. This means that the debt will only grow.
The period between January and April are our busiest at the charity providing debt help. If you're expecting a Christmas debt problem then get in touch with Debt Support Trust and we will help you resolve your debt problem and discuss suitable debt solutions.
You can get in touch with Debt Support Trust about a payday loan, or other debt, by telephoning 0800 085 0226.