PayDay Loans In UK

Payday loans in the United Kingdom are a rapidly growing industry, with four times as many people using such loans in 2009 compared to 2006—in 2009 1.2 million people took out 4.1 million loans, with total lending amounting to £1.2 billion. The average loan size is around £300, and two-thirds of borrowers have annual incomes below £25,000. There are no restrictions on the interest rates payday loan companies can charge, although they are required by law to state the effective annual percentage rate (APR). According to Consumer Focus, "the cost of obtaining a loan online (often £25-£30 per £100) exceeds the costs of obtaining a loan on the High Street (often £13-£18 per £100)" because they reject more applicants and face higher rates of fraud and default.

In 2009, the payday loan industry generated around £242m in revenue - around 20% of the total lending. The largest lender is Dollar Financial Group (which includes The Money Shop and Express Finance), which provided around a quarter of all payday loans in 2009. In February 2011 Dollar Financial additionally acquired the largest British internet payday lender, PayDay UK, and suggested The Money Shop's network could grow from around 350 shops to around 1200.


Payday loans are an American phenomenon and have been growing quickly in the UK market over the last five years. The premise is that they offer a relatively small amount of cash (usually up to £500) for a short term, around 2 weeks (or until ‘payday’). Payday loans often act as student loans, loans for credit card spending, or for other common purposes. The providers charge a fee for the loan usually expressed as a flat fee per £100 borrowed, usually around £25.
The number of people taking out payday loans in the UK in recent years has increased four-fold, to 1.2 million in 2009. Borrowers took out around 4.1 million loans amounting to £1.2 billion in money lent. Payday loan borrowers are taking out an average of 3.5 loans a year and the average size of a payday loan in 2009 was an estimated £294. 67% borrowers had incomes below £25,000.
A typical payday loan could cost £20 for every £100 borrowed, meaning a £300 loan would cost £360 if it was repaid after one month. Since there are no legal limits on rolling over loans in the UK, if the loan was rolled over for six months it could cost as much as £660 to repay the loan in full. There are no restrictions on the interest rates payday loan companies can charge: one UK company offers a "typical APR" of 1355%, taking compounding into account. Another lender advertises an annual rate of 2,225%. Most companies charge 25% for an advance repayable at the end of the month, which explains the high rate; a few charge 30%, which is equivalent to an APR of over 2,000%.

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