1.7 million Brits forced to borrow from high-cost lenders to pay off existing loans prompting fears of UK debt crisis
1.7 million people across the UK are borrowing from high-cost lenders in order to pay off existing debts, according to research from responsible lender, Creditspring.
A quarter of people (24%) who borrowed from high-cost lenders sought credit so they could repay other debts – prompting fears that millions of people in the UK are at high risk of falling into a debt spiral as interest and debt repayments pile up.
The same proportion (24%) who borrowed from high-cost lenders admitted that the fees they later faced were higher than expected as a lack of transparency across the lending industry continues to put borrowers at risk. As millions are forced to borrow to repay existing loans, confusing repayment terms and hidden charges are increasing the cost of borrowing and pushing vulnerable people into debt.
People are also increasingly reliant on credit to survive and meet the rising cost of everyday goods, with younger people impacted most. One in ten (11%) people aged 18-34 have taken out a new credit card to afford grocery shopping whilst 8% have taken out a new credit card to pay their bills.
With reliance on credit increasing, reform across the lending industry is vital to offer support to borrowers. Currently, a lack of transparency around fees and hidden costs is hitting borrowers and pushing many into debt.
Neil Kadagathur, Co-Founder and CEO of Creditspring, comments: “The UK is teetering on the edge of a debt crisis. The rising cost of living has driven reliance on credit but also forced millions of people into a corner where they’ve no choice but to borrow from several lenders to survive. This situation can rapidly spiral out of control and put households under unimaginable financial pressure.
“Given the reliance on credit at the moment, it’s vital that the industry offers more support to borrowers and urgently improves transparency around costs, empowering people to make more informed decisions about borrowing and reducing the risk of people falling into an unmanageable debt spiral. Unfortunately, the lending industry remains opaque when it comes to borrowing fees – all too often there is a lack of transparency around the true cost of borrowing and millions of people are hit by hidden and unexpected charges.”
Theodora Hadjimichael, Chief Executive, Responsible Finance, said: “The huge rise in people pushed into financial instability by rampant inflation and economic turbulence is impossible to ignore. Credit doesn’t solve the cost of living crisis or address the issues of wages or benefits which aren’t enough to live on. But credit is a fact of life, used to smooth uneven income or expenses, so it’s frustrating to see how some lenders’ hidden costs and lack of transparency actually make things worse for people.
“If people need credit they deserve better choices than exploitative ones. Responsible Finance’s members and supporters, including Creditspring, are all committed to building financial inclusion and have long been recognised for their track record in helping customers become better off. It’s now imperative that policymakers, regulators, social investors and capital providers focus their efforts to grow the responsible lending sector’s impact so customers have access to credit products designed to help them.”
Some people are fortunate enough to have money set aside to pay off their borrowing, but this is not a long-term solution. A fifth of people (20%) have already dipped into their savings to pay off debts, rising to 39% for younger people aged 18-34.
There is also a concerning reliance on savings to pay bills – with more than 11 million people across the UK dipping into savings pots to afford bill payments. A fifth (21%) of people rely on savings to pay bills, rising to 37% of younger people, and 22% admit that when they’re savings run out they will be forced to seek a loan to survive.
Neil Kadagathur adds: “Millions of people are raiding their savings just to survive the current cost of living crisis – clearly, this will have a disastrous impact on their future financial wellbeing unless drastic action is taken. Much more support is needed by government over the next few months but it’s also time for lenders to step up and provide more responsible credit products that protect borrowers and don’t encourage them to take on extortionate debts.”