Payday loans have for long been associated with financial emergencies. However, according to recent research, it has been found the a majority of people in the UK use such loans on paying for daily expenses such as utility bills and even groceries. The research conducted by the Institute for Public Policy Research (IPPR) shows that it is only one in three payday loans borrowers who use the loans obtained on real emergencies. A majority of such borrowers have been found to spend their loans on regular outgoings. This is a huge deviation from what payday loans have traditionally been used for.
The study further reveals that 32% of payday loans borrowers in the UK mostly use their loans on utility bills that include gas and electricity with 22% of the borrowers using the money to buy food as well as presents during the Christmas season. The analysis goes further to point out that young borrowers are more likely to spend their borrowings on night outs as well as on mobile phone bills as compared to older borrowers. This is a worrying trend that has led to the IPPR suggesting that there was need for alternatives to online loan lenders as these were likely to put people deeper into debt.
Debt problems and payday loans
According to the think-tank, people have a problem of making ends meet as opposed to the ability to plan financially as this is evident in the way they use payday loans. This is a trend that is worrying especially considering the number of young people taking such loans only to pay for recurring expenses. Considering the high interest rates that come with such loans and the fact that the repayment plans of such loans are not flexible there is need for banks and other lending institutions to come up with affordable and flexible loans that will help such people be able to avoid getting into huge debts that they will not be able to manage.
Payday loans are supposed to be used on emergencies especially in businesses. Restocking using a payday loan or even repairing your the truck you use to transport goods is a better way of using a payday loan as you are bound to make money out of this and eventually be able to repay the loan. The use of payday loans on recurrent expenses as well as other irrelevant activities as is the case witnessed in the study needs to be avoided at all costs.