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July 2, 2020

Statistics and Facts about Payday Loans in the UK

According to the CMA report, more than 15 million payday loans are taken by working citizens in financial distress each year. The following are some of the other interesting statistics about payday loans in the UK.

  • There are around 2 million payday loans in the UK who borrow up to 15 million loans worth over £3 billion in 2015. These figures have been increasing at an average of 35 percent each year.
  • The UK boasts of at least 90 payday loan lenders. The three largest lenders include Wonga, CashEuronet, and Dollar.
  • Two-thirds of the payday loan borrowers pay their loans religiously before the due date. About 80 percent of these customers apply for a subsequent loan once they have paid off the last one. A big number of the borrowers take their subsequent loan with the same lender. An average of 5 borrowers get loans from at least two different lenders in one year.
  • Over 85 percent of payday loan customers borrow the loans online. Another 25 percent prefer taking loans on high street vendors. The higher street borrowers typically have lower income revenue when compared to the income of the wider UK population.
  • In the last 5 years, 38 % of payday loan borrowers had a bad credit score. Thirty percent renegotiated with the lenders and paid off their loans under favourable conditions. However, about 10 percent of the defaulting cases ended up in court.
  • Most customers go for payday loans because of the speed with which they can access funds to meet immediate financial challenges like buying food, paying rent, meeting hospital bills, and paying school fees.
  • Half of the customers borrowed loans from lenders after being referred to them by close friends and colleagues. Only 10 percent went for the loans after learning of their existence through adverts. Besides, few borrowers bother to shop around and compare the cost of the credit that different lenders offer.
  • Ninety percent of customers do not find any other viable options that can substitute payday loans whenever they are faced with serious financial challenges. A big number of customers stated that they will still go for a payday loan whenever they have an immediate shortage of finances.

Payday Loans Regulations in The UK

The fowling are some of the crucial regulations of payday loans in the UK:

  • Lenders should obtain a license from the UK office of Fair Trading before they are allowed to operate.
  • Any advertisement for payday loan services must meet the requirements as underlined in the  Consumer Credit Advertisement regulations of 2004
  • Before 2015 there was no regulation on interest rates charged on payday loans by companies offering the credit. However, the Financial Conduct Authority (FCA) came up with new restrictions on the payday loan in 2105. The rules stated that:
  1. An interest cap of 0.8 percent is charged per day for every payday loan taken by borrowers. The rate is lower than what most lenders used to charge. This action served to lower the cost of payday loans for most borrowers. Currently, all short term credit loans in the UK cannot charge interest and other fees that exceed 0.8 percent per day.
  2. Borrowers who have challenges repaying the loans were sighed relief. The FCA fixed default fees at £15 for all borrowers who are struggling to repay the loans. If you don’t repay your loans on time, the default charges you will pay will not exceed £15. Additionally, the interest on unpaid balances and other default charges will not exceed the initial rate
  • In 2017 FCA came up with new rules that require lenders to prominently display links to a price comparison site on their websites. The link allows customers to compare loans more easily and choose a product that offers the best value.
  • The regulations also state that the payday loan borrowers should never pay back fees and interest that exceed the amount borrowed. This rule sought to protect borrowers from getting into bottomless debts.

The FCA regulation of 2015 achieved the following:

  • Put a price cap on high-cost short term loans.
  • Limitation on the number of times a quick loan can be rolled over
  • Clear guidance on the affordability checks that lenders should undertake before lending to borrowers.
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