New research by insolvency trade body, R3, reveals that 3.5 million adults are considering taking out a payday loan over the next six months.
R3’s research also shows that of those sampled who had taken a payday loan, 60% regret the decision and 48% believe the loan has made their financial situation worse. Only 13% believe their payday loan had a positive impact on their finances.
Frances Coulson, R3 President commented:
“Payday loans are not the best way to resolve debt struggles. We know that many who take them out find them to be a negative experience, often escalating financial troubles.”
A new group of ‘zombie’ debtors - who currently pay only the interest charges on their debt and not the debt itself - has also been identified by R3’s research.
One in six individuals are only able to pay the interest on their debt rather than paying off the debt itself. This breaks down into 11% who are only servicing debt on their credit cards, and 9% who are only paying the interest charges on their overdraft.
Frances Coulson continues:
“We hear talk of ‘zombie’ businesses, but seeing individuals run their finances in the same way is troubling. ‘Hanging on’ each month simply cannot be maintained forever. This group will have very few options should interest rates rise or their circumstances change.”
The highest ever levels of concern over debt were recorded in this quarter’s Personal Debt Snapshot run by R3, with nearly two thirds (60%) of individuals worried about their debt levels.
This is up 13 percentage points on July’s figure and 21 percentage points up on this time last year. In London this figure rises to 67%, but peaks at 70% in the North East where concern is at its highest.
As debt concern rises, R3’s research reveals that saving is at a low.
The number of individuals with no savings at all has risen sharply from 19% last quarter to 27% this quarter. Overall, 40% of the population is saving less at the moment than usual, compared to 27% of the population a year ago.
Frances Coulson concludes:
“Having a financial buffer is crucial to weathering periods of difficulty. If struggling to payday becomes a regular occurrence, seeking financial advice should be a priority over short term high interest credit.”
Gillian Guy, Chief Executive at Citizens Advice, said:
“As the payday loan industry grows, we have seen a four-fold increase in the number of people with payday loans coming to us for debt advice in the first quarter of this year, compared with the same period two years ago.
"We are concerned that some of the people we are seeing seem to be using payday loans to deal with existing financial difficulties.
"40% of people we see with payday loan debt have another high-cost credit loan and on average, CAB clients with payday loan debts had eight debts, while those without payday loans had five.
"Our evidence therefore suggests a pattern of people in long-term financial difficulty with other debts, who are much more likely to take out a payday loan to try and deal with these problems.
"And yet, the payday industry remains inadequately regulated. We have seen financially vulnerable consumers unprotected from a variety of unfair practices carried out by payday lenders.
"Some have been able to take out unaffordable and unsuitable loans, see their debts balloon, and are offered multiple rollovers. When they are unable to pay, many are then subject to aggressive collection practices.
"Many people are lost in a system that offers little protection and inadequate access to affordable credit.
"The Government must now deliver a much more powerful consumer credit regulation framework to protect financially vulnerable people from credit dependency and unmanageable debt.”
