IVAs may be needed as expert issues payday loans warning

Consumers can easily get into extreme debt as a result of taking out a payday loan, an expert has said.

Justin Modray of candidmoney.com said that despite the increasing popularity of such deals, people are probably aware of the “horrific costs” involved.

He remarked: “Typical payday loans charge interest of around 2,000 per cent or more. This is nothing short of legalised robbery.”

Such a deal could become extremely damaging to the finances of anyone not clearing them off quickly, he noted, stating: “It is important to remember that if you really must take out a payday loan then always ensure you can repay it on time, otherwise you could find yourself trapped in a downward spiral of exorbitant charges.”

Those who have got themselves into such a situation may find that an IVA is the best way to deal with it.

This involves a deal in which interest on debt is frozen and creditors accept lower payments, which must be made over a period of up to five years, at the end of which any remaining debt is written off.

An IVA becomes legally binding on all creditors if three-quarters of those are owed money, so a single company is less likely to have a veto on such a deal.

While an IVA is a form of insolvency, it offers an alternative to bankruptcy, with the arrangement being a confidential one, whereas becoming bankrupt is not and can be reported in the press.

Credit Action statistics for June revealed 331 people per day are made insolvent or bankrupt in Britain.

By James Francis