Credit where credit’s due?

Published: May 2016 Publication Type: Publication

Authors: Dr Charlotte Heales, Hannah Kitcher, Victoria Boelman

Over 12 million people in the UK do not have access to affordable credit. An estimated 16.8 per cent are over-indebted. In Wales, the proportion is higher in every single local authority area with three among the UK’s top 10 most over-indebted localities.

This report by The Young Foundation calls for real change to address this issue by improving access to affordable credit and providing people with the skills and confidence to make positive financial choices.

The report, which was launched at Cardiff University on 24 May, was commissioned by the Public Policy Institute for Wales as part of its work on tackling poverty and funded by the Economic and Social Research Council.

Victoria Boelman, Lead Researcher of the report said:

We take access to affordable credit for granted but in reality this can be a major challenge for many households, leading them to turn to high cost alternatives.

Professor Steve Martin, Director of the Public Policy Institute for Wales said:

High interest credit is an important issue in Wales, as well as the rest of the UK. We welcome this report which puts forward positive steps that can help to break the cycle of indebtedness that afflicts so many households and communities.

Glenys Thornton, CEO at The Young Foundation said:

This report is an important look at how high cost credit impacts on social wellbeing. The money that is spent paying back high cost loans could be invested into activities that boost standards of living and local economies.

Fifty per cent of the people who take out high cost loans experience anxiety and stress as a result of debt. If the debt becomes unmanageable it can have a significant impact on quality of life of individuals and families and in some cases on the life chances of children.

Some of the key finding from the research include:

  • High-cost credit customers come from all walks of life but they are mainly young families. They are equally likely to be employed as non-customers but are generally on low incomes.
  • Customers borrow for a range of reasons including everyday living, Christmas and birthday presents, holidays, moving house or major events.
  • Around 27% will take out their first high-cost loan because of life shock such as a bereavement, break up or birth of a child. 6% of the Welsh population have used one or more of rent-to-own stores, home credit and payday loans in the last year.
  • In recent years the attention has focused on payday loans but home credit and rent-to-own have largely escaped scrutiny despite being more prevalent and often more expensive. 65% of high-cost credit users turned to this option from the outset and do not compare offers between lenders.
  • The prevalence of high-cost loans in the community has a major impact. The majority live in communities where this type of borrowing is ‘normal’. Around 70% think borrowing from a doorstop lender is common in their community. Family and friends often make recommendations and referrals between themselves.
  • The cycle of debt is further reinforced by some lenders themselves, particularly home credit agents. They encourage new loans when customers have almost paid off their debt or shortly afterwards. Over 35% have taken out another loan when offered.
  • There are alternatives such as borrowing from a credit union or loans from friends and family. Only a third of those researched considered these alternatives. Many of those who borrowed from a credit union originally borrowed from a high-cost credit lender.

For the Welsh language version of the summary report please click here.

For the full copy of the report please click here.

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