Tuesday, 29 June 2010

Payday and Friday-Night Loans and “Young Women in the Red”



Culled from Company Magazine, June 2010


"It’s Friday night and you’re at the bar, ordering another bottle of wine, when your phone vibrates. ’Broke? Payday is still a week away. Need £100? Get a seven-day loan to see you through’ with a link to a loan website. With an ever increasing overdraft, three credit cards and a student loan hanging over your head, you’d be tempted, right?


You wouldn’t be alone. As levels of debt in young women remain high, and the number going bankrupt rises (55% of young bankrupts are women), Company has uncovered a number of dangerous new tactics used by loan companies to target vulnerable young women. Websites like http://www.txtloan.co.uk/ are offering new ‘Payday loans’ via text, iPhone apps or advertising links on social-networking sites. The catch? The 2,000% interest APR they’re charging. So if you do borrow what you can’t afford, you could find yourself deeper in debt than ever.


It used to be that loans required a trip to your bank – but now you can borrow up to £1000 by text or at the click of a mouse. But the 2,000% APR means paying back a whooping £1,861 on top, over just six months.


In 2009, the Consumer Credit Counselling Services, a free debt-advice service, recorded an increase in contact from under-25s. There was a 26% rise in calls to its helpline and a 200% increase in those seeking help on its website since 2007. And, although the average male debt has recently fallen, female debt has remained the same. Of those seeking help with debts, the average person under 25 owes £7,524 and single women owe, on average, a staggering £16,937.


Experts have also reported a correlation highlighting that, as women become more successful, their debts grow too. Statistics reveal that, the more we earn the more we’re likely to owe. So someone on a salary of £30,000 or more a year will have a credit-card debt three times larger than someone who earns less than £10,000 a year, and a personal-loan debt twice as high.


Psychologist, Dr Sheila Keegan also believes it’s easier to get into debt now, and puts that down to the internet. “Years ago, people were paid in cash. Now everything is done online or by card. Because your money is not so visible, it doesn’t seem as real. That, alongside the fact that the government encourages young people to take out loans for university, means debt has becomes a permanent part of young women’s lives.”


One of the main problems about debt is that we don’t talk about it. Behaviour expert, Judi James explains, ‘We’ll chew over heartbreak and talk about our sex lives, but money is still taboo.”


James Birtles also believes that encouraging women to speak out is key to helping solve the female debt crisis. “Most women struggle with debt on their own, but, if you’re open with friends, you’ll probably find 80% are in debt and don’t really like it. You can become debt buddies and help each other out of the red, in the same way dieting or exercise buddies can help you lose weight.”


Company approached The Financial Standards Authority (that will be split into two separate bodies in 2012) with our concerns about payday and Friday-night loans. It told us it is looking into loan companies charging terrifying amounts of interest and, as we went to press, it is preparing to publish a report on the subject.


In the meantime, Jasmine’s advice is to never act on impulse when money is involved. “If you need a loan, take your time, do your research and always read the fine print. Generally, if it sounds too good to be true, it probably is.”

Picture credit: http://www.company.co.uk/

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