Payday loan statistics

A closer look at the facts and figures of payday loans

Chris Lilly
by , Credit & Loans Publisher

Payday loans (or high-cost, short-term credit) are short-term lending for small amounts of money. These loans can be accessed quickly, even by those with bad credit or lower incomes. The tradeoff is that they usually come at a high cost. While 4 in 5 of these loans are usually paid off in 31 days or less, if we look at the typical interest rates charged, it works out to be 1,300% annualised. Rates vary by payday lender, but compared with most other credit options, this is an expensive way to borrow.

Take a look at the diagram below which illustrates the different types of personal loans and where payday loans fit in:

Personal Loan Types diagram, Instalment loans & payday loans (Short term loans) and Debt consolidation, home improvement etc (Personal loans).

We analysed the most recent Competition & Markets Authority (CMA)’s Payday lending market investigation report (2015) to provide helpful insights into the high-cost short-term lending market.

The latest facts and figures

In January 2015, a cap was introduced on the interest rates that can be charged on payday loans in an effort to regulate them. These are marketed as one-off loans for unexpected expenses. However, due to the accessibility of these loans, it has resulted in people using it for everyday expenses such as groceries, bills and car costs when they are short on cash. About a quarter of payday loans in the UK are rolled over to a new loan term and typically charge £24 a month for every £100 borrowed.

The average payday loan customer

CMA determined the typical characteristics of a payday loan and its borrowers through the analysis of their loans data. Whilst the single most common amount borrowed was £100, the average loan size was £260. 75% of the customers in their data took out more than one loan in a year with the average customer taking out 6 loans in a year.

Image showing average payday loan usage.

Demographics

People are more likely to take out a payday loan if they are unmarried, between 25 and 30 years old, living in rented accommodation and on an income of under £1,500 per month.

Image of the payday loans typical demographic.

Where do customers typically access payday loans?

Payday loans can be accessed both online as well as on the high street. The CMA reported 83% of payday loan customers took out a loan online whilst 29% did so in-store. An overlap of 12% of payday loan customers has used both channels.

Venn diagram of sources of payday loans

What are payday loans used for?

Even though payday loans were designed as one-off loans for unexpected expenses, the actual result is quite different. An alarming proportion of people have admitted to using payday loans to cover recurring expenses. Over 1 in 2 (53%) borrowers reported “Living expenses such as groceries and utility bills” as their reason for taking out a payday loan. 2% of borrowers confessed to taking out a payday loan in order to pay off another one. Other reasons include car or vehicle expenses (10%) and general shopping such as clothes or household items (7%).

Pie chart showing the most common uses of payday loans.
Most common purchases with payday loans:
  • Living expenses (53%)
  • Car or vehicle expenses (10%)
  • General shopping (7%)
  • Pay off another loan (2%)
  • Other (28%)

Why do people need payday loans?

Over half of borrowers (52%) said they had to take out a payday loan because they suffered an unexpected increase in expenses or outgoings whilst almost 1 in 5 (19%) said it was due to an unexpected decrease in income. Of those who said their need was due to a shift in financial circumstances, 93% saw this change as temporary. Almost 3 in 5 (59%) said their payday loan was for something that they could not have gone without. Even though almost 1 in 4 (24%) of these people said that they would have gone without the purchase if a payday loan had not been available.

Pie chart showing the reasons why people use payday loans.
Most common reasons why people use payday loans:
  • Unexpected increase in outgoings (52%)
  • Unexpected decrease in income (19%)
  • Other (29%)

2019 Update

4 years after the interest rate cap was introduced in 2015, how has the payday loan market responded? We take a look at the latest facts and figures of the High Cost Short Term Credit (HCSTC) market to find out.

What does HCSTC mean?

High Cost Short Term Credit is defined by the Financial Conduct Authority as unsecured loans of up to 12 months with an APR of 100% or more, but does not include overdafts and home credit or bill of sale agreements.

Year to date figures (June 2018) show over 5.4 million of the loans have been taken out, almost half the amount as the peak in 2013 (10 million) before regulatory action was taken. The number of providers has also fallen from over 100 to just 88 in 2018, the most notable provider to leave the market being Wonga in 2018. See the chart below for a more detailed breakdown over the last 2 years for the amount of loans taken out and the number of firms in operation.

Quarter and YearNumber of loansNumber of firms
Q3 20161,177,749106
Q4 20161,107,448102
Q1 20171,087,58393
Q2 20171,259,71497
Q3 20171,301,06193
Q4 20171,353,35092
Q1 20181,316,50193
Q2 20181,456,99388

Size of the market

Customers borrow in excess of £1.3 billion each year and pay in excess of £2 billion. Explore the chart below to see how much we have been borrowing each quarter since 2016.

Quarter and YearTotal value of loansTotal amount payable
Q3 2016£288,560£445,800
Q4 2016£263,910£411,182
Q1 2017£245,120£380,877
Q2 2017£288,706£516,768
Q3 2017£318,615£516,235
Q4 2017£324,997£537,260
Q1 2018£303,018£501,237
Q2 2018£338,179£564,056

Who is taking out Payday Loans?

Payday loans remained a popular borrowing option in 2018, but who is taking them out? The latest figures suggest the younger proportion of the population is still more likely to have taken out a payday loan.

  • 37% of payday loan borrowers were aged 25-34.
  • Compared to just 16.5% in 45-54 year olds and 6.4% of those aged 55+.
  • Payday loan borrowers also reported being less confident about managing their money, with 61% saying so.
  • This is over twice as high as the population average, with just 24% of UK adults reporting low levels of confidence in managing their finances.


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