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.
We've looked into other investigations by the Financial Conduct Authority (FCA) including how savers are missing out on £480m in interest and proposals to reform the dysfunctional overdraft market.