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It seems the so called knights in shining armour helping you out in a sticky spot could in fact help ruin your future.
They used to be billed as emergency loans. Now they are on offer for everything from breast implants to an indulgent day at the shops.
But while borrowers promise themselves it’s ‘just this once’, short-term payday loans from legal loan sharks are fast becoming a black mark on their credit file and a blow to financial health for years to come.
Financial Mail has learnt that Experian, the UK’s biggest credit reference agency, has begun categorising payday loans separately from other forms of borrowing when issuing credit reports on bank customers.
Concern: MP Stella Creasy (left) fears a Christmas ‘nightmare’ over loans from groups such as Wonga (below) and the Money Shop (above right)
It means that this Christmas, consumers with a history of using payday loans will be identifiable in Experian’s credit reports for the first time.
Banks have been quick to react. One contacted by Financial Mail said it declined loans to any new customers it found had been using payday lenders.
Others admitted privately that payday borrowing would count against those applying for loans and mortgages, even years later.
A spokesman for Experian said: ‘We decided to begin separating short-term loans from ordinary loans in our reports because they are becoming increasingly popular, because they are a different type of loan and because we were responding to what our clients were asking from us.’
He said there had been a ‘mixture of responses’ from mainstream lenders to the use of payday loans and not all of them would take the same attitude to payday borrowers as they would with bankrupts.
Anyone hoping to improve their credit rating by taking a payday loan and paying it back within the required period may be misguided.
Paul Lynam, chief executive of Secure Trust Bank, whose respectable Everyday Loans subsidiary deals with many who are trying to get out of the payday loan trap, said: ‘A wider societal issue is that most banks will have what they call fatal criteria within their automated credit decision tools.
‘If one of these criteria is triggered, a loan request will be automatically declined. Banks are increasingly including the existence of a payday loan within the fatal criteria.’
Although most of the major lenders deny they would refuse finance to someone who had a payday loan or had one in the past, unofficially executives admit that repeated use of payday loans makes them wary.
Payday loan organisation the Consumer Finance Association said this was ‘unfair’ to borrowers
Payday loans have been called the Japanese knotweed of the consumer credit markets and are engulfing low-income families. Loans are offered almost instantly, interest rates of more than 4,000 per cent are typical and penalties for failing to pay in time are almost always punitive. Wonga, Britain’s biggest payday loan lender, takes back £136.72 for a 30-day loan of £100.
Lynam, a former Royal Bank of Scotland banker, said: ‘People with payday loans will find it increasingly difficult to get mainstream lending or mortgage facilities because they have fallen for the seductive payday loan marketing.
‘In that respect the majority of people we see with payday loan difficulties are males aged 25 or under. If this is representative of the bigger picture, that is really quite concerning indeed as a generation of young men could be in serious danger of having their credit files seriously blighted.’
Stella Creasy, Labour and Co-operative MP for Walthamstow in north-east London, said she was ‘desperately concerned’ about the growth of the market.
‘This is turning out to be everything I warned the Government it would become – and worse,’ she said. ‘Christmas is going to be a nightmare and it is only going to get worse next year.’
The Office of Fair Trading said it had identified 222 payday loan firms operating in Britain. But Creasy said that may underestimate the true extent of the market. She said the problem facing low-income families was growing, with energy bills due to rise next year and benefits being cut.
But she also said it was spreading to groups previously considered to be insulated from credit problems.
‘Ministers say people need to have a choice. But many families don’t have a choice. The Government’s approach seems to be that we shouldn’t interfere in markets, but in reality we do that all the time and it is necessary to make sure markets work effectively,’ she said.
Far from being restricted to emergencies and one-offs, borrowers are using payday loans to raise money for food, fuel and other bills and a fifth even said they had used one to pay the rent, according to a Which? report last week.
A separate report due to be released today is expected to renew calls for a clampdown on payday lenders. The Centre for Responsible Credit says studies in Japan suggest wide-ranging reforms since 2006 across the country’s previously notorious loan shark market have vastly reduced levels of toxic debt.
The Office of Fair Trading will soon publish revised guidance on debt collection that is expected to limit the ability of payday loan companies to dip into borrowers’ bank accounts – known as continuous payment authority.
It is also planning to issue its long-awaited report on the sector by the end of the year amid mounting pressure from groups that work with low-income families.
Payday loan firms argue they provide an alternative to doorstep loan sharks. But groups say that low-income families should be seeking alternative forms of help rather than resorting to high-interest loans and getting further into debt.
Read more: http://www.thisismoney.co.uk/money/c...#ixzz2D7fxD3on
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They used to be billed as emergency loans. Now they are on offer for everything from breast implants to an indulgent day at the shops.
But while borrowers promise themselves it’s ‘just this once’, short-term payday loans from legal loan sharks are fast becoming a black mark on their credit file and a blow to financial health for years to come.
Financial Mail has learnt that Experian, the UK’s biggest credit reference agency, has begun categorising payday loans separately from other forms of borrowing when issuing credit reports on bank customers.
Concern: MP Stella Creasy (left) fears a Christmas ‘nightmare’ over loans from groups such as Wonga (below) and the Money Shop (above right)
It means that this Christmas, consumers with a history of using payday loans will be identifiable in Experian’s credit reports for the first time.
Banks have been quick to react. One contacted by Financial Mail said it declined loans to any new customers it found had been using payday lenders.
Others admitted privately that payday borrowing would count against those applying for loans and mortgages, even years later.
A spokesman for Experian said: ‘We decided to begin separating short-term loans from ordinary loans in our reports because they are becoming increasingly popular, because they are a different type of loan and because we were responding to what our clients were asking from us.’
He said there had been a ‘mixture of responses’ from mainstream lenders to the use of payday loans and not all of them would take the same attitude to payday borrowers as they would with bankrupts.
Anyone hoping to improve their credit rating by taking a payday loan and paying it back within the required period may be misguided.
Paul Lynam, chief executive of Secure Trust Bank, whose respectable Everyday Loans subsidiary deals with many who are trying to get out of the payday loan trap, said: ‘A wider societal issue is that most banks will have what they call fatal criteria within their automated credit decision tools.
‘If one of these criteria is triggered, a loan request will be automatically declined. Banks are increasingly including the existence of a payday loan within the fatal criteria.’
Although most of the major lenders deny they would refuse finance to someone who had a payday loan or had one in the past, unofficially executives admit that repeated use of payday loans makes them wary.
Payday loan organisation the Consumer Finance Association said this was ‘unfair’ to borrowers
Payday loans have been called the Japanese knotweed of the consumer credit markets and are engulfing low-income families. Loans are offered almost instantly, interest rates of more than 4,000 per cent are typical and penalties for failing to pay in time are almost always punitive. Wonga, Britain’s biggest payday loan lender, takes back £136.72 for a 30-day loan of £100.
Lynam, a former Royal Bank of Scotland banker, said: ‘People with payday loans will find it increasingly difficult to get mainstream lending or mortgage facilities because they have fallen for the seductive payday loan marketing.
‘In that respect the majority of people we see with payday loan difficulties are males aged 25 or under. If this is representative of the bigger picture, that is really quite concerning indeed as a generation of young men could be in serious danger of having their credit files seriously blighted.’
Stella Creasy, Labour and Co-operative MP for Walthamstow in north-east London, said she was ‘desperately concerned’ about the growth of the market.
‘This is turning out to be everything I warned the Government it would become – and worse,’ she said. ‘Christmas is going to be a nightmare and it is only going to get worse next year.’
The Office of Fair Trading said it had identified 222 payday loan firms operating in Britain. But Creasy said that may underestimate the true extent of the market. She said the problem facing low-income families was growing, with energy bills due to rise next year and benefits being cut.
But she also said it was spreading to groups previously considered to be insulated from credit problems.
‘Ministers say people need to have a choice. But many families don’t have a choice. The Government’s approach seems to be that we shouldn’t interfere in markets, but in reality we do that all the time and it is necessary to make sure markets work effectively,’ she said.
Far from being restricted to emergencies and one-offs, borrowers are using payday loans to raise money for food, fuel and other bills and a fifth even said they had used one to pay the rent, according to a Which? report last week.
A separate report due to be released today is expected to renew calls for a clampdown on payday lenders. The Centre for Responsible Credit says studies in Japan suggest wide-ranging reforms since 2006 across the country’s previously notorious loan shark market have vastly reduced levels of toxic debt.
The Office of Fair Trading will soon publish revised guidance on debt collection that is expected to limit the ability of payday loan companies to dip into borrowers’ bank accounts – known as continuous payment authority.
It is also planning to issue its long-awaited report on the sector by the end of the year amid mounting pressure from groups that work with low-income families.
Payday loan firms argue they provide an alternative to doorstep loan sharks. But groups say that low-income families should be seeking alternative forms of help rather than resorting to high-interest loans and getting further into debt.
Read more: http://www.thisismoney.co.uk/money/c...#ixzz2D7fxD3on
Follow us: @MailOnline on Twitter | DailyMail on Facebook
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