Borrow £250… pay back £413: FCA report shows consumers paid £800m in charges and interest last year after using high-cost, short-term credit
- Consumers took out £1.3bn in loans in 2017-18 and paid back £2.1bn says FCA
- Average loan was £250 and consumers typically paid back 1.65 times that
- Regulator found lending rates are on the rise again in the last two years, but still remain below 2013 levels
Consumers last year paid £800million in interest and charges on high-cost short-term credit like payday loans, the City regulator has found.
Between 1 July 2017 and 30 June 2018, consumers borrowed just under £1.3billion with these types of loan and paid back £2.1billion, according to the Financial Conduct Authority.
The borrowing highlighted in the report is non-mortgage loans charging annual interest rates of 100 per cent or more where the money is generally due to be paid back within 12 months.
More than 5.4million short-term high-cost loans were made in the period, the FCA said.
The FCA said high-cost short-term credit like payday loans were to blame for consumers paying back £800m in fees, charges and interest rates last year
The average borrower was due to repay just over one-and-a-half times the amount of the original sum lent to them.
The average loan value was £250 – and the typical amount consumers were due to pay back was £413 – 1.65 times the average amount borrowed.
The FCA said lending volumes in the high-cost short-term credit market remain well below the levels seen in 2013, but have increased in the last two years.
It comes two weeks after a report by the Trade Union Congress found that the average household was over £15,000 in the red last year, a new high.
A crackdown on payday lenders has taken place in recent years, including limiting the number of times lenders are allowed to roll over loans and capping the cost of borrowing.
People in the North West were found to be particularly likely to take out short-term high-cost loans, while those in Northern Ireland were particularly unlikely.
The FCA said credit unions tend to be more commonly used in Northern Ireland, which may be a factor.
The regulator said the costs of borrowing are generally lower than before the payday loans price cap.
That cap was introduced at the start of 2015 and limited loan rates at 0.8 per cent of the amount borrowed per day, and also prevented borrowers from paying back more than twice the amount they borrowed.
The FCA’s research also found that two-thirds of payday loan borrowers are over-indebted compared with 15 per cent of UK adults generally.
Payday loan borrowers tend to be young, with more than a third aged between 25 and 34.
And 37 per cent of high-cost short-term credit borrowers are tenants, while just over a quarter are living with parents.
The FCA took over responsibility for regulating consumer credit activities in 2014 and has recently been shining a spotlight on the high-cost credit sector.
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