Concern at number of Scots resorting to payday loans

The number of Scots turning to expensive payday loans in a desperate attempt to ease the pressure on their finances more than doubled last year, alarming new figures show.

Scots are also increasingly likely to take out more than two payday loans and are getting into deeper debts with the firms, according to research for The Scotsman by the Consumer Credit Counselling Service (CCCS).

Thousands of Scots have resorted to payday loans in recent years after being denied credit by mainstream lenders and demand continues to grow as unemployment creeps up and pressure intensifies on household incomes.

Payday loans are designed for short-term repayment, but those unable to clear their debt on time face annual interest charges of up to 3,600 per cent, sending them spiralling deeper into debt.

Almost 9 per cent of Scots going to the CCCS for help with their debts last year had a payday loan, up from just 3.6 per cent a year earlier, it reveals today.

The number of loans taken out by CCCS clients averages out at 2.37, while the typical amount owed has jumped from £919 two years ago to £1,199.

Una Farrell, spokeswoman for the CCCS, a free debt advice charity, said: “The dramatic rise of people in Scotland seeking our help with their payday loans is very worrying. Not only is this very expensive credit with exorbitant interest rates, it becomes even more so if you struggling to repay it and end up paying sky-high charges.

“It is crucial that anyone who finds themselves using payday loans more than three times a year or repeatedly rolling the loans over should seek help with their debts. Otherwise, they will find themselves falling into a debt hole very quickly.”

The increased use of payday loans comes as many Scots are making a concerted effort to pay down their debts. The average Scot going to the CCCS for advice last year had outstanding debts of £16,183, compared with £18,276 the previous year and £19,617 in 2009.

Yet the number of people going bust north of the Border continues to rise. The latest report from the Scottish Government’s Accountant in Bankruptcy showed that 75 people in Scotland are going bankrupt every working day, a rate almost double that in England and Wales. There were 4,856 personal insolvencies in Scotland in the first three months of this year alone, up nearly 14 per cent from the same period in 2011.

John Hall, Scottish council member at insolvency trade body R3, said: “It is not surprising that many more Scots are struggling with their finances and taking out payday loans that subsequently trigger financial problems.

“Many of these individuals will be unable to access mainstream credit sources and resort to payday loans to deal with short-term cash flow problems. However, whilst such loans may appear to fulfil a short-term need they can, and often do, cause the individual’s debt situation to become much worse.”

One in three Scots admits to anxiety over their debt levels, recent R3 research found, with twice as many people north of the Border as elsewhere in the UK worried about their payday loans.

“It should be remembered that those with payday loan debts will also have probably maxed out on mainstream loans, overdrafts, credit cards and other forms of credit before they get to the payday loan company.”