British adults twice as likely to use payday loans as credit unions
- Nearly 2m British adults have recently used a payday loan; under 1m have taken a loan from a credit union
Payday loans are twice as popular as loans from credit unions, according to a new report from R3, the insolvency trade body.
An R3/ComRes survey of over 2,000 British adults found that 4% – equivalent to 1.9m British adults – say that they have taken out a payday loan in the last six months, while just 2% – 754,000 British adults – said they have taken a loan from a credit union in the last six months.
Phillip Sykes, deputy vice-president of R3, says: “Credit unions are often touted as an alternative to payday loans, but on this evidence they have a lot of catching up to do.”
“Payday loans have become one of the default options for those trying to tide themselves over from one month to the next, but there really do need to be alternatives. While high-cost, short-term credit might be helpful in some circumstances, payday loans are not a long-term option. They only dig people struggling with debts into deeper holes.”
Phillip Sykes adds: “At the moment, credit unions aren’t ready to rival payday loans. They can’t compete on advertising and awareness or the number of loans they can make, while their lending policies are necessarily more conservative than payday rivals. Credit unions’ challenge to payday loans is a welcome one, but policymakers must give serious attention to helping them boost and fulfil their potential.”
The British adults most likely to say that they have taken out a payday loan in the last six months are those aged 25-34 years old, 8% of whom say that they have taken out a payday loan – 2% of this age group say that they have taken a loan from a credit union in the last six months.
The British adults most likely to say that they have taken out a loan from a credit union in the last six months are those aged 35-44 years old, 4% of whom say that they have borrowed money from a credit union – but 6% of this age group have taken out a payday loan in the last six months.
The survey also found a slight rise, the first since September 2012, in the number of British adults saying they were likely to take out a payday loan in the next six months. 8% of British adults say they are likely to take out a payday loan in the next six months, up from 6% in September 2013.
15% of 18-34 year olds say they are likely to take out a payday loan in the next six months, compared to 5% of those aged 35 and over. However, this gap is much smaller than it has been in the past: in September 2012, 24% of those aged 18-34 said they were likely to take out a payday loan in the next six months, compared to 6% of those aged 35 and over.
Phillip Sykes says: “While the appeal of payday loans may have dimmed, a significant chunk of British adults still feels that payday loans are their only option to make it from week-to-week or month-to-month.”
Struggle to payday
R3’s research also found that 43% of British adults say they often or sometimes struggle to make it to payday. Of those in this position, 59% cite the rising cost of food as a problem, 52% blame rising household energy bills, and 38% blame the rising cost of transport.
Phillip Sykes says: “People struggling with debts are vulnerable to those companies claiming to offer ‘solutions’ to debt or money problems that aren’t really solutions at all: they often just mean more debt and no protection from creditors.”
“Formal insolvency procedures or help from a licensed insolvency practitioner can get people out of debt and offer them protection from creditors too. However, inconsistencies in the government’s rules on insolvency can make formal insolvency difficult to access. This leaves people unable to access real debt solutions, and reliant on unregulated alternatives or payday loans instead.”
Stella Creasy, the shadow consumer affairs minister, commented on R3’s research: "It’s shocking so many now struggle to get to payday and that this is due to household bills like energy, rent, or repaying credit cards and payday loans. As we see more and more people going to payday lenders or getting into debt these problems are going to get worse, and if interest rates rise or rents continue to go up we could see millions of families out on the street or becoming so called zombie debtors – paying just the interest not the capital on their debts – as they are stuck in a never ending spiral of debt and misery.”