Payday Loan Statistics

A closer look at the facts and figures of payday loans

Vicky Ng

by Vicky Ng, Insights Analyst

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.

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.


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

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 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.

Demographics

What does the typical payday loan customer look like?

Where do customers typically access payday loans?

Payday loans can be accessed both online as well as off the high street. Whilst applying for a loan with high street payday lenders allows you to talk to a person in real life to help you assess your options, online lending could be a more convenient option as customers can apply for a loan from their home. The added benefit of online payday lenders is that you can quickly compare different lenders through comparison websites to help you choose the best option. The CMA reported 83% of payday loan customers took out a loan online whilst 29% took out a loan on the high street. An overlap of 12% of payday loan customers has used both channels.

Personal Loan Types diagram

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%).

Why do they 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.

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