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An extensive report by the Centre for the Modern Family (CMF) revealed that the current generation is more accepting of predatory loan products than other generations. The figures point to a troubling trend amongst families with small children and teenagers who are more likely to become customers of high street lenders.

CMF found that this group actually has obtained payday loans at more than double the rate of their parents. It paints the picture of increased acceptance and reliance on high-interest loans as a means for paying for expenses.

While short-term borrowing has historically been the last resort for those who experienced a financial emergency, payday loans are increasingly being obtain by families who simply cannot keep up with the cost increases of their regular living expenses.

It is a troubling trend. Most of these borrowers realise that the rates are high, but they don’t really understand how ridiculously high such rates actually are.

Blogger Martin Lewis reported that if a person were to borrow just £100 for a period of seven years, that the balance would actually exceed the national debt of the United States. His calculation utilised the published 4,214% representative APR that was advertised by Wonga. It is important to note that his calculation was made three years ago. Since then, Wonga’s representative APR actually increased to 5,853% APR, which includes the cost of additional fees that are added to the regular daily interest rate.

Why is payday loan borrowing increasing?

Experts are quick to point out three primary reasons for increased reliance on these dangerous products.

1. Desperation faced by families struggling to pay their bills is one reason for the troubling trend. Living costs keep rising, yet salaries are not.
2. Witty advertising by payday loan companies is contributing to the improved acceptance by families. As these companies become household names, people are more likely to turn to them during times of perceived financial emergencies.
3. The decline in financial responsibility is further causing concern amongst officials and consumer advocates. People are increasingly turning to the government to receive monthly aid to pay their bills. They are also buying more items on credit rather than delaying a purchase long enough to save for the purchase.

Why not turn to credit cards and lower cost borrowing?

With payday loans charging such high rates, why would these families not just turn to more traditional forms of borrowing that have much lower costs? There are two answers.

1. First, many of these families already have. The average household with children at home owe more than £4,127 on credit cards. Many have simply run out of available credit.
2. Other families are unable to be approved for credit cards. They lack the credit history, income or other qualifications in order to be approved for such credit lines.

One sad reality is that some borrowers are turning to payday loans even though they would have qualified for much lower rates had they first turned to a mainstream lender. By shunning banks and credit unions in favour of high street lenders, they have accelerated their financial demise.