The squeeze on working class wages is driving families and individuals into the arms of “payday lenders” that charge exorbitant interest rates, according to a new survey commissioned by the Unite union.
A typical short term loan would be £200 from lenders such as Wonga, Quick Quid, Money Shop or Provident. Repaying the loans and interest effectively swallows up three days worth of wages a month.
The survey also reported an average £150 a month drop in wages between April 2011 and February 2012. Only 18 percent said they were managing to cope, with the remaining 82 percent having to rely on other sources of income to supplement wages.
Typically these were friends and family (38 percent), a second job or savings (29 percent), or bank and credit cards loans (21 percent). But some 12 percent were turning to payday lenders to make up the shortfall.
This is leading to a sharp rise in people getting into debt troubles. The Consumer Credit Counselling Service, a debt advice charity, said that the number of people contacting it with worries over payday loans rose by over double to 17,400 last year from 7,800 in 2010.
People are using the loans to cover the basics of life. When asked what they were borrowing for, the five most popular answers were, in decreasing order, housing (rent or mortgage), food, utility bills, petrol and clothes.
The latest Unite survey is part of a long term project conducted with research firm Mass1. They have been tracking the fortunes of 350,000 people, mostly Unite members, since January 2011.