With the costs of basic household expenditure spiralling, it has been suggested that a growing number of Britons are turning to payday loans to cover their monthly financial costs.
According to price comparison service moneysupermarket, the number of people choosing to take out short-term loans has increased by 55 per cent since September of last year. The loans are particularly useful for covering the costs of utility bills and food spending, both of which are said to be increasing at an uncontrollable rate. The recorded rise has grown steadily over the past six months, the firm report.
There has been a particularly sharp spike since the beginning of the year. While the percentage increase since September stood at 11.1 per cent in December, by January that figure had risen to 45.4 per cent. February proved the most popular month for consumers looking for a little extra cash before payday, with a 68.9 per cent increase reported when compared to the September figures.
Tim Moss, head of loans at moneysupermarket, said: "The rise in payday loans is astronomical and symbolises just how difficult people are finding it to cope day-to-day. As disposable income is being squeezed through increases in the cost of food, fuel, utilities and general living necessities, these loans are increasingly used to help those on a tight budget. Payday loans can be useful as a short-term credit vehicle. They are a bit like taxis - convenient for short journeys, but if you are going a long way, there are much cheaper ways to travel."
He went onto explain that most payday loans have a maximum term of 30 days with a basic rate of interest standing at 25 per cent. The moneysupermarket chief said that for those faced with the prospect of dipping into unauthorised funds, the loans offer a more cost-effective solution.
"Borrowing 80 pounds for a month and repaying 100 pounds is a better deal than going into your unauthorised overdraft," he suggested.
However, for those who having difficulty making ends meet as their monthly pay packet runs dry, Mr Moss asserted that they should only be taken out to cover short-term financial crises and were only appropriate for those who were certain of being able to pay the loan back expediently. He added that if people were unsure of their ability to pay the item back, it would be best to steer clear of them. Mr Moss recommended turning to friends or family for short-term debt relief instead.
Alternatively, people could attempt to arrange an authorised overdraft with their bank, he suggested.
Mr Moss concluded by suggesting that in the long-term, people should undertake a more comprehensive overhaul of their financial habits. Making regular contributions to a high interest savings account was identified as an effective way to ensure that there were enough spare funds available as the end of the month approached. He also recommended that consumers should look to cut out all areas of non-essential spending in order to ease the increased strain that rising energy and food costs are having on many people's finances.
Last month, moneysupermarket urged consumers to be active in managing their finances in a constrained economic environment.
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