Insolvency practitioners are warning people to be aware of the risks of using payday loans after a rise in the number of North West adults who report struggling to make it to payday as a result of using short-term, high-interest loans.
The latest research from the insolvency trade body R3 and ComRes shows that, while the use of payday and other high-interest loans in the region had fallen to negligible levels in 2016, it now appears to be on the rise again, as is the number of North West people under pressure due to the cost of repayments.
The results are in line with recent figures from the financial ombudsman which show that nationally, complaints about payday loans rose by 22% in the second half of 2016.
According to the R3 research, one in 25 people in the North West (4%) report having taken out a payday loan in the past six months – the highest level since August 2015.
Two in five adults (41%) in the region report debt worries, of which 14% say they are worried about a payday loan. This compares to just 1% in January 2016. Meanwhile of the one in three people in the region (36%) who say they struggle to reach payday, 12% blame the cost of repaying a payday loan, up from 7% in January 2016.
The financial ombudsman says it is now receiving about 200 complaints a week nationally, from people from all walks of life including teachers, nurses, students, and even vets. This is despite a clampdown by the Financial Conduct Authority on the sector in April 2014, which has forced payday lenders to make tougher affordability checks and a price cap on such loans introduced in January 2015.
Bank of England figures released last week show that overall consumer credit has risen to pre-crash levels. Paul Barber, the North West chair of R3 and a partner at Begbies Traynor, said: “With borrowing on the rise, many families will be vulnerable to debt problems. However, it is particularly disappointing to see signs of an increase in the use of payday loans, when we thought that tougher regulations and greater consumer awareness had curbed demand.
“While a payday loan might be a short-term fix, it’s not necessarily the best solution for everyone and it isn’t a long-term option. R3’s research confirms the longer-term damage that this type of credit can have on people’s finances, leaving them struggling to reach subsequent paydays and trapped in a cycle of debt and worry. The stress this causes can affect the whole family – our recent research showed that 1 in 4 in the North West (24%) felt money worries were affecting their mental health.
“People in this situation need to break the cycle by seeking advice from an insolvency professional or debt charity who can help them to find a long-term, more sustainable solution.”
The research was carried out by ComRes which interviewed 232 adults in the North West as part of the national survey.