Research released in May 2018, to coincide with Mental Health Awareness Week, revealed that financial anxiety is on the rise in the UK. Many people now owe over £1,000 more than they did at the same time last year.
According to the Money Advice Trust, the average British adult each owes 114% of their annual salary.
“The rules make it very clear, that any kind of lending should only be on offer if the borrower has the ability to pay it back. There’s evidence that many people who’ve been sold payday loans aren’t in fact in this position.”
Is Personal Debt a Stress Timebomb?
Financial anxiety has a huge negative impact on people’s sense of wellbeing. Where people lack confidence in their personal finances, they are more likely to be dissatisfied with life in general.
“For more than three quarters of us, the cost of living is a basic concern. And within this group, many are struggling with maintaining a sense of wellbeing. Stress about money can affect anyone, but some may find themselves in a more vulnerable position than others.”
Financial worries can start building, adding to a general sense of unease, culminating, in some instances, in severe stress.
Payday Loans and Psychological Vulnerabilities
Financial difficulties can fuel stress, but together these two things can leave people more vulnerable to getting deeper into debt.
“Cash-strapped consumers can often turn to short-term loans because the pressure they’re under makes them feel like there’s no alternative. The problem is, these loans will generally have eye-wateringly high interest rates.”
Some of these rates are over 5,000% APR, meaning that even a small payday loan can soon mount up in debt.
Given these kind of terms, why would anyone sign up in the first place?
“Being under financial pressure can make you psychologically vulnerable, and people will focus on the here and now rather than the future”
“Immediate rewards seem worth more than distant ones, and the promise of immediately alleviating some of that worry is very tempting.”
There is neuroscientific evidence that exposure to stress impacts negatively on people’s economic decision-making. The more stress hormones the body releases, the more steeply people will discount the future, impairing the reasoning power of the prefrontal cortex in the brain.
“Some payday lenders will let you have the money within 5 minutes of approving your loan. If stress is already narrowing your attention, this rewards your fixation on getting access to easy cash fast.”
What if You’ve Been Mis-sold a Payday Loan?
If you have borrowed money through a payday lender, you might be entitled to a full or part refund of the money you have paid, if they mis-sold you your loan.
“Many people take out these payday loans to cover normal life expenses, when in fact they’re really intended for short-term borrowing to cover unexpected expenses. Some people have even taken them out to help pay existing loans they already have.”
This is where the problems can arise.
“If you’re borrowing to pay for daily expenses, or to pay off another loan, this suggests you aren’t in a position to pay the loan back”
“Where you have taken out a loan from a payday lender and it has not been paid off in the intended period; or if you have had more than one payday loan at the same time, then you may not meet affordability criteria, which means you should not have been sold the loan in the first place,” concludes Morgan.
Paragon are a claims management company specialising in mis-sold PPI, packaged bank accounts and payday loans. This article is one in a series that highlights consumer protection and the personal impact of mis-sold to. For an additional read, please visit: