youthmoney

A charm offensive has begun from providers of payday loans. These companies offer cash advances to over-18s who are in work. They’re attractive because they are easy to get and don’t require a good credit history. They’re unattractive because they are very expensive, and likely to trap people in a spiral of increasing debt.

Some personal finance journalists are helping to bring respectability to these high-cost lenders. Simon Read argued recently in the Independent that they provide a service to needy people. He refused to be horrified at payday loan companies charging APRs over 2,356 per cent, claiming that at least they are not as bad as violent, illegal lenders. Shaky ground that.

The Daily Mail’s Rosanna Spero had a different but equally false comparison to make. She found payday lenders charging over 3,000 per cent. But managed to make it look not so bad by comparing it with selected charges of unauthorised overdrafts from high street banks. This allowed the headline writer to claim “banks are the new loan sharks“.

There is very likely to be more of this misleading guff from the industry and its journalistic supporters. One internet-based lender, Payday Bank, is issuing press releases claiming that they are now mainstream and more trustworthy than high street banks.

Which makes it a good time to refresh some arguments about why payday lenders are not mainstream, in the sense of being a sensible option for everyday borrowing.

• If the debt rolls on, which is what will happen if the capital amount isn’t repaid as planned, it will be renewed each month and spiral quickly and disastrously.
• Short term expensive loans can be useful for a genuine emergency, provided you know and understand the charges and are sure of being able to clear the debt very quickly.
• There are other, much better alternatives for people on low incomes. Agreed overdrafts, credit union loans, social fund loans, and loans from friends are all worth checking out before considering payday lenders.

Young people need to know that a payday loan isn’t an everday, mainstream way of managing money. Considering it is a sign that they’re on the edge of losing control.