In a report recently published by the Financial Conduct Authority, there has been a rise of about £800 million in high cost short term loans that need to be paid back in the last year. Despite less lenders in the high cost loan industry and increased regulation, the demand for such products remains strong, perhaps as an indication of the current Brexit market.
The Financial Conduct Authority stated that approximately two thirds of people who took out a high cost payday loanwere already in debt in and unsure if they could repay their loan on time. The average loan size according to the FCA in the high cost industry is £250 which typically results in £413 being repaid over the course of 3 months.
The figures that have been released surrounding high-cost short-term loans have showed an extremely concerning trend in relation to the rising household debt which currently sits at £15,000 per household.
The low price cap has attracted interest from new innovate lenders and entrepreneurs with payday loans alternativesincluding sustainable credit loans, loans that can be repaid in instalments and flexible overdrafts. With more app-based lending and more flexibility, the high cost industry is slowing moving away from a traditional 30-day loan product.
According to a personal finance analyst for AJ Bell has stated that there are 2 other large contributors. The first is credit cards which accounted for £45 billion pounds in debt, as recorded last November. As well as this, it was discovered that around £6 billion was found stuck in UK overdrafts from last year.
The Financial Conduct Authority’s most recent study as well as a raised awareness about other types of loans, has further shown some of the major components that have contributed to the overall debt in the UK. They have also highlighted the ways in which the country can try to wipe out, or at least attempt to correct, the huge financial losses within the country.