The Financial Conduct Authority (FCA) has revealed that the number of high-cost short-term credit loans is on the rise, but a price cap has helped keep borrowing costs down.
Borrowers repaid more than 165 percent of the cost of their original loans, the regulator’s analysis shows. The figures, covering the period between July 2017 and June last year, showed that over 5.4 million loans were made in that time with £1.3bn borrowed and £2.1bn repaid in total.
The demise of Wonga, which collapsed into administration in September last year, is not taken into account in the figures, which show that lending volumes had been on the rise since 2016 – but were still much lower than in 2013. The FCA estimats that in 2013, before the sector was regulated, the number of high-cost, short-term loans stood at around 10 million per year.
Borrowers were predominantly young, with 37 percent of payday loan borrowers and 29 percent of short-term instalment borrowers aged between 25 and 34. More than half of all high-cost short-term borrowers are either tenants (37 percent) or living with their parents (26 percent).
“While the price cap was a good move from the FCA, problems in the high cost short term credit market are far from over,” said Richard Lane, director of external affairs at StepChange Debt Charity. “The FCA figures show payday lending rising again, and financially stretched young people are still most likely to resort to high cost credit – which matches what we see among our clients.
“All too often this type of credit is what people turn to get by when they are already struggling to meet their commitment.”