Martin Lewis has given advice to families turning to payday loans as the cost of living crisis rages.
Soaring energy, fuel and food costs, coupled with worries about paying household bills, are driving growing demand for payday loan interest to make ends meet, a new survey has found.
Experts warn that payday loans can be a poor way to raise cash quickly and a dangerous road, despite the short-term relief they may seem to provide. 12 months, according to research by savings platform Raisin UK.
READ MORE: Martin Lewis says he lacks the tools to make ends meet
From April 1, households will face a record energy bill rise of 54% after regulator Ofgem lifted the cap on default tariffs to £1,971. Drivers continue to be stunned by record fuel prices, with petrol averaging £1.65 a litre.
Kevin Mountford, co-founder of Raisin UK, warned that Payday loans can be a dangerous path, despite the short-term relief they may seem to provide. He said: “It’s easy to fall into a cycle of debt with these programs if you continually need them to cover deficits. With interest rates rising, payday loans will most likely leave you struggling financially. , especially since you will owe these companies an ever-increasing amount of money.
Payday loans are short-term loans for relatively small amounts. They may be easy to access, but the interest rates are very high. They work by agreeing that the company can take its payment from your debit card on the day your next salary payment is due, although some lenders allow you to pay over a longer period – often up to six months.
For some, they offer loans of last resort which, when used well, can fix unexpected holes in people’s finances, although according to MoneySavingExpert Martin Lewis, many of these loans have been irresponsibly given and mis-sold to those who couldn’t afford to repay, ChronicleLive reports.
Dozens of lenders with bad credit have gone bankrupt, including big-name payday lenders such as Wonga and QuickQuid, leaving customers with legitimate claims with dramatically reduced payments.
Citizens Advice agrees with Martin Lewis that payday loans are almost always a bad idea and warned against people seeing them as a quick fix to solve today’s problem.
Martin Lewis advised people to try the following ways to raise short-term cash before applying for a payday loan:
- A credit card allows you to spend without interest if you pay it off in full. A 0% card gives you even more time to pay without interest.
- Check if you qualify for a government budgeted loan at 0% up to £812
- Ask for help from the family
- 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 as possible and budget to repay as soon as possible
- Don’t take out one personal loan to pay off another. If you regularly get payday loans, there’s 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.