Recent research published by the Financial Conduct Authority (FCA) has highlighted the size of the high-cost short-term credit (HCSTC) market, which includes payday loans normally repayable within one month, and short-term instalment loans repayable within a maximum of 12 months. More than £1.3bn was borrowed between 1 July 2017 and 30 June 2018 at interest rates (APR) of more than 100%, with the amount repayable on that borrowing being £2.1bn.
The FCA data, sourced from regulatory returns and the FCA’s own Financial Lives Survey 2017 also includes the following key statistics:
- Over 5.4 million HCSTC loans were made in the year to 30 June 2018
- Lending volumes increased when compared to 2016, but were well below the levels seen in 2013
- The average loan amount was £250, with the average amount repayable being £413 i.e. 1.65 times the amount that was borrowed
- The average APR charged was around 1,250% (mean value), with the median value slightly higher at 1,300%.
- The North West has the highest number of loans per head of adult population (125 per 1,000), with Northern Ireland having the lowest (74 per 1,000)
- The average loan values were the highest in Greater London
- The highest proportion (37%) of payday loan borrowers are aged 25 to 34
- 37% of HCSTC borrowers are tenants, and 26% are living with parents
Perhaps the most concerning, but unsurprising statistic supports the cycle of debt – 67% of payday loan borrowers and 49% of short-term instalment borrowers are over-indebted, compared with 15% of UK adults. As part of efforts to protect the more financially vulnerable in society, the FCA introduced price capping in January 2015 which limited interest and fees to 0.8% per day of the amount borrowed, with an overlying restriction that fees and interest can not exceed 100% of the amount that was borrowed.
The full findings of the FCA research can be found here.