Struggling Borrowers to Turn to Payday Lenders

Mon, 07 Sep 2009

A new survey from the Bank of England has fuelled expectations of an increase in the number of people set to default on loans . The survey found that an increasing number of British borrowers are struggling to meet repayments on loans, mortgages and other debts, with punitive interest rates on credit cards sometimes leading to spiralling repayments on relatively small borrowings.

The news comes as banks are being accused of hoarding credit from both businesses and consumers. Unable to secure further loans to consolidate existing debts, consumers are turning to payday loan lenders to cover essential costs, whilst experts fear that some desperate lenders may turn to illegal loan sharks as their debt spirals out of control. The exorbitant interest rates on some of these credit forms can lead to some borrowers becoming further swamped by debts.

Meanwhile, financial institutions have once again predicted an increase in the availability of loans to business, despite a dramatic failure to meet expectations of a rise in lending to business in the last quarter.

Independent analysts remain cautious in their predictions of increased lending, as banks seek to build up a capital reserve to guard themselves against toxic debts before approving risky loan applications.
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