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Revealing the real borrowers of Britain PDF Print E-mail
Wednesday, 18 October 2017
New research commissioned by Elevate Credit reveals new insights about Britain’s short-term borrowers in a report by the Social Market Foundation (SMF). The independent report analyses the short-term borrowing landscape more than two years after the introduction of the FCA’s price cap in 2015. The report highlights a divergence between assumptions around short-term borrowers and reality, with a significant proportion of those surveyed believing that people who use short-term credit are poor (46%), on benefits (32%) and unemployed (29%).

In fact, 84% of people who have taken out a short-term loan in the last three years describe themselves as “coping”, “comfortable” or “very comfortable”. In addition, the group had a median gross household income of £25,558, compared to the median of £27,200 seen across all UK households.2

The vast majority (83%) of people who have used short-term credit in the last three years are in full time or part time employment, across a range of professions and industries such as retail, engineering, and financial services[1]. Beyond this, a very small proportion was students (2%) or retired (3%). The remaining 12% were unemployed, of whom half (6%) were not working because of a specific reason, such as long-term illness.

Scott Greever, Managing Director of Elevate Credit, commented on the research findings: “There are a lot of misconceptions about the people who use short-term credit. They are unfairly stigmatised when in fact, they hold down jobs, have bank accounts, and contrary to some perceptions, consider themselves to be coping financially and they are comfortable with borrowing on a short-term basis. This is also what we know to be true about our customers.

“In many cases, short-term borrowers are excluded from mainstream credit and can’t turn to friends or family for help. It’s not in either our or a customer’s interest to accept applications from people we know might not be able to pay us back. That’s why we have market-leading affordability checks in place and in fact; we decline approximately 75% of the applications we receive.”

Short-term borrowers tend to be young; 44% are aged between 18 and 34. They are also significantly more likely to have dependents than people who have never used short-term credit. More than a quarter (29%) have three or more dependents, about four times the average for non-users of short-term credit (7%). In addition, just under half of borrowers (46%) are homeowners. A total of 24% of short-term borrowers have both dependents and a mortgage, demonstrating the increasing financial pressures faced by families in the UK.

Borrowers of short-term credit are less likely than non-borrowers to be able to rely on financial support from family and friends. One in five (19%) say they don’t have friends or family who would be in a position to lend them up to £100 in an emergency. This rises to 41% for amounts of £1,000 or more - again, significantly higher than those who’ve never taken out a short-term loan (27%).

In general, borrowers of short-term credit use it infrequently. The majority (82%) of short term borrowers surveyed report they had used a short-term loan three times or less over the last three years, and 40% had just used a short-term loan once. Based on the findings, the report does not suggest a widespread problem of habitual use of short-term finance in the UK.

The report also shows the main reasons for short-term credit use is for essential expenditure, such as paying household bills such as gas and electricity (24%), paying for an essential repair (22%) and day-to-day expenses such as groceries (20%). This suggests the main purpose of short-term loans is to respond to temporary cash flow problems, rather than ongoing financial issues among UK households.

Scott Corfe, Chief Economist at the SMF, says, “The market for short-term lending has changed greatly since the introduction of a price cap by the FCA. People who use this type of loan are on higher incomes than before the cap, and acceptance rates for short-term loans have decreased – suggesting that policy reforms have made significant headway in improving outcomes for consumers.

“Most short-term loan users surveyed valued benefits such as being able to access money quickly and having the means to cope with financial emergencies such as unexpected repair costs. However, a significant proportion of users point out downsides such as unexpected charges. This highlights areas where the market as a whole needs to improve, and there is certainly a case for the FCA and lenders themselves to continue to focus on generating better outcomes for consumers.”

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