Borrowers May Turn to Payday Loans to Cover Higher Repayments

Wed, 03 Feb 2010

Financial analysts are suggesting that borrowers may turn to payday loans following the latest series of interest rate hikes. Personal loan lenders have increased interest rates in recent months, while banks and building societies have also increased rates on mortgage . Norwich and Peterborough building society has upped its standard variable mortgage rate for new and existing customers by 0.5 per cent to 5.35 per cent, and borrowers are being warned not to use payday loan lenders as a long term financial solution.

While the short term loans offer a useful service for borrowers needing a short term solution, debts can spiral if the loans are frequently used to meet repayments . A number of building societies have increased interest rates on their products recently, perhaps unsurprisingly considering that they are finding it hard to attract savers given the strong competition from state owned banks and the government-run National Savings and Investments .

Cheap rates from building societies are therefore few and far between, with Nationwide abolishing its 2.5 per cent SVR deal, which was costing it £450 million a year. It has been replaced by a more expensive standard rate of 3.99 per cent.
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