Cost of living crisis drives increased financial insecurity with 90% increase in short-term loan applications and young people hit hardest - LexisNexis Risk Solutions report finds

13/03/2023

LONDON – Short-term loan application volumes in the UK almost doubled (90% increase) between April and June 2022, as the cost of living crisis pushed many to turn to high-interest loans, according to research by LexisNexis Risk Solutions. The research, which analyses data from two major credit reference agencies and over 30 other public and private sources, also found that there has been a more than 70% increase in the number of people using expensive short-term loans to service other debts.

The amount people are typically looking to borrow has also steadily increased. In early 2021, the most common loans that were applied for were between £250-499. By Dec 2021, £500-999 was the most common value requested (31%) and by April 2022 £1000–4,999 was most commonly applied for (30%). This has remained consistent throughout 2022.

This data clearly demonstrates the significant impact that the cost-of-living crisis is having on people in the UK, with loan application volumes almost doubling directly following the energy price cap rise in April 2022, from under 300k, to almost 600k applications by June of the same year 2022.

In addition to short term loan data, analysis of County Court Judgements (CCJs) - legal judgements pertaining to personal debt defaults – in the UK found that the number of CCJs has more than doubled over the past two years, between August 2020 and August 2022. This indicates that people are struggling, even with small debts which are potentially being used to cover every day expenses.

These judgements are also over smaller sums of money – in Oct 2020 approximately 1 in 5 CCJs related to debts between £250-£500, but this has risen to 1 in 3 as increasingly smaller financial shocks are causing people to fall behind on debt repayments.

Younger people appear to be the worst affected, with fewer savings, lower paid jobs and higher monthly outgoings making them more vulnerable. Those aged 26-35 now receive 30% of all CCJs and adults aged 26-45 consistently the most likely to default on personal debts. While a smaller group, the proportion of judgements against 22-25 year olds has doubled over the last two years to almost 8%.

Steve Elliott, LexisNexis Risk Solutions, said: Our analysis shows an alarming increase in the number of people turning to risky, high-interest loans as a way of managing their financial difficulties. Rising costs of energy bills, groceries, mortgage payments and other essentials are pushing people to increasingly desperate circumstances. With lower value CCJs also on the rise, it is clear that budgets are already being stretched well beyond their limits and even relatively small financial shocks are proving tipping points into defaulting on debt. The fact that so many people are turning to this type of short-term borrowing during these tough economic times suggests they have no access to other, mainstream sources of credit, which proves that millions of people are still being excluded from fair and affordable financial services, as our financial inclusion study last year showed.”

Richard Lane, Director of External Affairs at StepChange, said: “The past three years have piled enormous pressure onto household’s finances – our own research has found that since March 2020, the number of people struggling to keep up with household bills and credit commitments has nearly tripled, rising from 7.5 million people to 22 million people. Against this backdrop, a lack of alternatives to borrowing to cope with these income shortfalls will only push struggling people toward the kinds of short term, high-cost credit highlighted in this report. The consequences are escalating problem debt and long-term financial harm.

“Struggling borrowers need creditors to step up to ensure the right safeguards are in place, both to help people cope with the cost of living crisis and to support people already facing problem debt. The new Consumer Duty is a crucial opportunity for firms to redesign products and change practices to ensure credit does not exploit financial difficulty and those who are struggling get effective help fast.

“The government can also play its part to help those at risk of or already in difficulty. This includes by scrapping plans to reduce the Energy Price Guarantee by £500 in April, and by expediting the introduction of social tariffs for energy, water and broadband.”

StepChange Debt Charity is the UK’s largest debt advice charity, helping hundreds of thousands of people a year.

Founded in 1993, StepChange supports people experiencing debt problems through telephone and online services, and campaigns for change to reduce the harm and stigma associated with debt.

We provide the UK’s most comprehensive debt advice service, from budgeting tips through to managing debt solutions that enable to people to pay off or clear debts. All our free debt advice is available by phone or on our website.

StepChange is currently experiencing problems with imposter firms, who pass themselves off as the charity in online adverts. As these imposters are prominent online, if you are directing an advice seeker towards our services, please include a direct link to our website: https://www.stepchange.org/

Our Helpline: 0800 138 1111

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