Some four million adults in the UK intend to take out a payday loan to cover the cost of Christmas this year, according to new research.
A survey of 960 people by R3, the trade body for insolvency professionals, revealed that 8% of adults are considering turning to a payday loan due to the pressures of spending over the Christmas period.
Louise Brittain, R3 council member, has urged people to reconsider using a high interest loan to pay for presents or food.
“If used in the right way, to fill a genuine one-off gap in finances, a payday loan does have a place.”
She added: “My concern is that a significant proportion of these individuals will not be able to pay off the loan in time – meaning they will need to take out another one or roll it over and could end up facing high penalty charges.”
Research conducted by R3 in December 2011 among 2,005 adults showed that one in three of those who took a payday loan could not pay it off and had to take out another one.
While 48% believed the loan had made their financial situation worse.
An amendment to the Financial Services Bill was agreed in parliament on 28 November, which may give the new regulatory body, the Financial Conduct Authority, the power to cap interest rates on payday loans.
Russell Hamblin-Boone, chief executive of the Consumer Finance Association, said: “Our members lend responsibly and we advise people to borrow responsibly which is why we issued a guide in November for anyone considering a payday loan to help them pay for Christmas.
“Having researched more than 1,000 payday customers we know that 85% of them have no difficulty repaying their loans and just 19% of loans are for non-essential items such as gifts or holidays.”
Of the 960 people surveyed, 537 are in full-time work, 86 held down a part-time job and 337 are not in work.