The report, from the UK payday site Simple Payday Loans, makes a grim appraisal of the market for high-cost short term loans. The payday loan survey reveals that not only are the majority of those using payday loans unhappy about it, but more than half of people surveyed – 61%, said that they had no confidence in managing their finances.
The findings are eerily reminiscent of previous reports regarding the industry, this eventually led to an industry-wide clampdown and a new governing body being formed in 2015. This forming of a governing body, the FCA, and abolishment of the Office of Fair Trading, the previous governing body, confirmed to onlookers that the industry was to be reigned in.
What Changed
It was early 2017 when new rules governing high-cost short term lenders was introduced. This consisted of new rules on trading being installed and an industry-wide shake-up – leading to the demise of the largest lender in the sector, Wonga.
These changes were meant to stop the practices of irresponsible lending and lending to those that could not afford it. Whilst clamping down on lenders that flouted the rules and enforcing industry-wide protocols – such as displaying a prominent APR warning on every website offering a payday loan product.
With the new tightening of procedures, including new licenses, a more robust system for complaints and larger fines, all under their control, the newly formed Financial Conduct Authority stood poised to take down all infringements upon their rules. This was quickly realised with liquidations and bankruptcies of various companies, among them, some large lenders forced out of business with crippling fines.
A Typical Tale
Sarah was 29, a full-time law clerk and had just broken up with her partner of 10-years. She confides to me in our interview that she was feeling “vulnerable” because of the breakup and had started to seek solace in going out with friends more often. “I would go out most nights of the week. If there was an event or drinks after work I’d include myself, whereas before I wouldn’t necessarily. I mean I went out before…But not like this, I was out most of the week.”
Sarah quickly found that spending on things such as meals, drinks and transport was adding up. Even though she says she had a good job and income. “I lost track, took my eyes of counting the pennies and quickly came up short. This, even though my job was paying well.”
She says she sought the help of payday lenders when she found she was short for her share of the rent. “I live in a houseshare…the last thing I wanted to do was be late for my share.” She first tried asking friends and family and says when that didn’t work she went into her bank, but they flatly refused her overdraft extension request.
“They said that because of the present activity on my account there wasn’t anything they could do.”
She applied for a loan of £200 to make up the difference on what she was short for the rent. “I had started to really worry about it. It was a real relief when the cash for that first loan came through.” However, this loan led onto another loan of £300 the following month, and again £400 the month after.
“ I guess I got caught in a cycle. I had to take another loan because I was running short at the end of every month.”
It was at this point, she says, that she cut down her spending and ‘didn’t go out for a month.’ “I had to stop, I was in a good job, it didn’t make sense how that could happen to me.”
Reflecting, Sarah says that she was perhaps spending more than she normally does because of the circumstances around her breakup and is back-on-track with saving as she is getting married next year. “Today, I’m in a much better place. My life is more complete as I’m (nearly) married and we are planning for the future. I think being happy has a large part to play in it. Being happy means that I’m focussed on my responsibilities and everything is just easier. I don’t have to worry about money anymore.”
Facts and Figures
- The payday loan market in the UK was worth over £1.3 billion yearly in 2018.
- 36.9% of payday loan users are between the ages of 25 and 34.
- Those over the age of 65 make up less than 0.8% of the market,
- 26.2% of payday loan users are living at home with parents.
- 67.3% of payday loan borrowers are over-indebted.
- Only 5.6% of payday loan borrowers have any confidence in the financial services industry.
Source: FCA Financial Lives Survey
How Much Money Can I Borrow from a Payday Lender?
Payday loans are small amounts designed to be repaid after you are paid at the end of the month. Taken out for no more than 30-days, they are typically used instead of a credit card or in place of other credit establishments such as cash-for-gold or cash converters in financial emergencies.
Payday loans carry a higher than normal interest rate when compared to other forms of credit like personal loans or unsecured loans. They are, however, much faster to apply for and be funded with. Payday lenders will typically offer amounts from £50-£1000. Your circumstances, the individual affordability of the loan and the status of your credit file will dictate the loan decision by a payday lender. Your credit file will also be checked as this is a credit agreement. Just like your overdraft or house insurance checked your credit in order to approve your account, a payday loan is the same.
