CreditRaters.com Find Consumers Back Demand For Short-Term Loan Companies

It may be the season to be jolly, but for many, the festive period comes at a cost: a financial one to be precise. According to the Bank of England, the average household spends £800 more than usual at Christmas.

With all the budget excesses, ranging from food and drink to presents, it’s no surprise that many turn to short-term loans at this time of year.

But it’s not just Christmas that creates a financial strain. With the rise in zero-hours contracts, and a growing gig economy, many are struggling to bridge the gap between paydays. As a result, over 5.4 million loans were taken out in the year to June 30, 2018. A figure that has continued to rise in the previous two years.

Industry Reforms

Short-term loans have become topical of late, due to the industry changing in the past year. Financial reforms were introduced to help protect consumers against high, inflated rates that many felt exploited the most vulnerable.

Since then, a number of same day loan companies have gone bust. This started with Wonga in August 2018, and has continued at apace. In 2019, at least five major same day loan companies have gone into administration, including; QuickQuid, Piggybank, My Money Partner, Swift Sterling, Wageday and 247moneybox.

The Findings

In a bid to uncover industry truths, Credit Raters conducted independent research into the industry during December 2019, with over 3,000 respondents. Here’s what the findings revealed…

Question: Are you pleased several big payday lenders have closed their doors recently?

According to our findings, although the vast majority of people (44 per cent) remain impartial, a third (37 per cent) of consumers are pleased that the big payday lenders have shut down. However, 18 per cent are disappointed in the news.

Question: Do you think all existing payday lenders should shut down?

As for the remaining payday companies in operation, the overwhelming majority (71 per cent) of consumers would like to see them stay in business, believing they deserve a second chance to win back customers. Furthermore, 20 per cent of people would like to see only the payday companies that charged high interest rates close down.

Question: When you think about high cost short term loans, do you think of it as something you need or don’t need?

The findings reveal that two in five people (42 per cent) need a short-term loan, even if it’s high-cost. Whilst only 11 per cent said they would not need a loan.

Question: Do you think having less short-term lenders will increase illegal money lending?

However, this means that consumers will be turning to other alternatives for credit. Worryingly, at least half the public (57 per cent) anticipate that illegal money lending will become one of these options.

Robert Bindon, Director of Credit Raters, said; “Whilst many of the big payday loan companies have gone away, the issue of credit has not. Millions of people across the country continue to need short-term bridging loans, to help see them through to payday and beyond. Christmas is a particularly expensive time of year, and with the New Year sales looming, it’s likely that many will turn to other forms of resource – be is credit cards, loan sharks or selling goods, to raise short-term funds.”

Question: Why do you use payday loans?

Perhaps most enlightening of all, is the reason why so many people take out a short-term high-interest loans in the first place.

It appears that convenience is high on the agenda.

Half of all respondents revealed it’s because they’re ‘fast and easy’ to apply for. This has been one of the big draws of short-term loans… as well as one of their biggest criticisms.

But another significant reason why many turn to this form of finance, is because most consumers can’t get credit elsewhere. Well over a third (39 per cent) of people, according to our research, have no other means of accessing cash.

Only three per cent of respondents turn to short-term lenders as a final resort, and five per cent do so, as they simply don’t have any preference where they borrow money from.

Question: How would you rate the value for money of payday loans?

Turning to customer satisfaction, the results are somewhat surprising. Our findings highlight that the vast majority of consumers (86 per cent) believe that payday loan companies offer ‘average or above’ value-for-money.

When asked to rate this, the majority of respondents (48 per cent) voted high-interest short-term loans as ‘average’ value for money, followed by 21 per cent rating them ‘excellent’ value. Just 17 per cent rated them ‘higher than average’ value.  Only 13 per cent of people consider these types of loans to be ‘below average’ value for money.

Question: If you were approved of a loan for £100 over 3 months to repay £139, how likely would you be to accept this loan offer?

Contrary to popular opinion, short-term loans are often required for day-to-day basics. This includes everything from rent and bills, to food and travel.

The demand is on the rise, particularly in line with flexible and freelance working, which create income uncertainties. Therefore, it’s no surprise that given a hypothetical scenario of being approved for a loan, most people would take it.

If a £100 was approved for three months (to repay £139), a whopping 90 per cent of people said they would accept it.

Of this, 46 per cent would be ‘extremely likely’ to accept the offer, 27 per cent would be ‘very likely’ to, and 17 per cent would be ‘somewhat likely’ to accept it.

Only nine per cent of the public would refuse to accept the loan.

Summary and Take Out

2019 might be remembered for many things, but in the world of finance it will be for the clean-up of short-term loan companies, and demise of many as a result.

But this hasn’t addressed the issue of where consumers will now turn to for financial support. One suggestion is credit cards. According to the Bank of England, credit cards have been accounting for an increase in share of consumer credit growth over the past few years. In keeping with the results from our findings, this is likely to do with the ease and convenience it offers.

What 2020 may offer for consumers is yet to be determined, but one thing’s for sure – short-term finance options are not going away.

Credit Raters is a free financial comparison website offering comparison against a wide range of credit products; from instalment loans, to credit cards. It can also assist in helping to rebuild credit history.

To find out more, please visit https://www.creditraters.com/uk

Sources:
https://www.bankofengland.co.uk/statistics/money-and-credit/2018/june-2018
https://www.bankofengland.co.uk/knowledgebank/how-much-do-we-spend-at-christmas
https://www.fca.org.uk/data/consumer-credit-high-cost-short-term-credit-lending-data-jan-2019