Payday loans cost cap will encourage borrowing – report
According to research from alternative lender Amigo Loans, while the majority of Brits (84%) welcome the Government’s proposed cap, one in ten 18-34 year olds are more likely to take out a loan as a result of lower charges, while 9% would take one out anyway irrespective of the cap.
In November, the Government announced plans to control the costs of payday loans amid fears lenders were trapping vulnerable borrowers in debt.
However, the Amigo report found that the majority of Brits felt the proposed cap does not go far enough to tackle the problems of bad debt due to payday loans.
More than three quarters of Brits (82%) think payday loan companies make it far too easy for people to take out a loan, while 86% believe payday lenders should be doing much more to ensure borrowers actually understand interest rates before agreeing to lend them money.
Meanwhile, three quarters of Brits (74%) believe computer calculations, used by the likes of Wonga, do not allow for sufficient checks to be made to ensure the information provided by the customer is correct before lending.
Over three quarters (81%) think loan companies should speak to customers instead to ensure loans are only given to those who can afford to repay.
James Benamor, founder and CEO of Amigo Loans, said: “The Government’s cap reeks of gesture politics and while it might go some way to eliminate the crooks in the market, it won’t solve the bigger issues plaguing the industry which is clear guidance on affordability.
“Borrowing money can be a good thing and at cheaper rates an even better thing but it’s all academic if people can’t afford the repayments. The cap could be 0% and payday lenders will still be giving loans to people who shouldn’t be borrowing. The regulator needs to act urgently and offer clear guidance on affordability, and harsh enforcement against the worst offenders.”