Short term, high interest loans have instead taken their place, with more and more people turning to such programs to pay their bills as the cost of living continues to rise.
Consumer expert Martyn James said: “Payday loans are still popular, but they’ve reinvented themselves in a completely different way.
“These new short-term loans give the impression that they are different, but all that has changed is that the length of time you can take out a loan has been extended and the amount of interest you pay has been very slightly reduced.”
Although interest rates may not be in the thousands like they once were, a quick search of payday loans on the internet reveals that they are still incredibly high.
There are a host of companies available, offering up to tens of thousands of pounds instantly, with many also suggesting it doesn’t matter if applicants have bad credit.
One of the first results reveals a website claiming “we’re not cheap but we’re fast” – offering quick loans with a massive interest rate of 611.7% APR.
Another announced rates of 939.5% APR, warning that late repayments “can cause serious money problems”.
This may be a reflection of what payday loans have become.
Traditionally they were used, it seems, to help people get to their next payday if they ran out of funds. They tended to be only for a small amount which should be paid back within the next couple of months.
However, over time payday loans have become the more generally used name for short-term, high-interest loans lasting up to a few years and worth tens of thousands of pounds.
The FCA intervened in 2014 to protect borrowers from excessive fees in this market, by capping the maximum interest rate lenders can charge and ensuring no one repays more in fees and interest than the amount borrowed. .
Shortly after the fall of Wonga, which marked the beginning of the end of payday loans as we know themwith its collapse in 2018 leaving around 200,000 customers still owing over £400million.
The lender had become the face of exorbitant interest rates, at one point charging an extraordinary rate of 5,853%.
After his passing, many realized the dangers of payday loans, but it didn’t take long for others to take their place.
Although FCA data shows that there has been a decrease in the amount lent to consumers through these types of loans – mainly due to the reduction in the number of lenders – this only concerns regulated companies.
Between July and August 2016, 106 companies lent £300.2m, according to FCA data, but that figure fell to £64.4m from just 38 companies between April and June this year.
However, many others, which are unregulated, are flooding the market, with some charging consumers exorbitant interest.
James says, “New loan companies don’t want to be associated with payday loans. Although they are regulated, they are for all intents and purposes the same thing.
As a result, those who take out these loans should be careful not to take on more debt, experts warn.
An FCA spokesperson said: “Many consumers are feeling the impact of the rising cost of living on their personal finances and we expect this to increase over the coming months. This can lead to an increase in the demand for credit.
“Companies should only lend to people who have the means to repay and who need to support borrowers in financial difficulty by offering them tailor-made support, specific to their situation. We have reminded them of this and will continue to scrutinize lenders.
It is naturally tempting to take out a short-term loan for some who think they need to borrow money for a short time.
Many companies are adamant that the app won’t impact your credit score or that they’re not just for people on benefits – wrapping up the deal as an easy and affordable option for those who need with a quick injection of cash.
However, these promises often hide exorbitant interest rates.
James doesn’t blame the public for going for these loans because he says they are, essentially, disguised as responsible loans.
“The public thinks he’s sane – and believes he’s getting a ‘proper loan’ like people used to from the bank. Instead, what they get is a variant of the worst kind of loan.
While there really isn’t a “right way” to borrow money, there are ways people can minimize their risk while doing so.
This includes borrowing from regulated institutions and constantly checking the interest rate you will be charged.