Revealed – the main reasons why people turn to payday loans

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Payday loans broker CashLady has published its market analysis for last year based upon the over 700,000 payday loans applications it received for the 12 months beginning January 1st 2018.

Payday loans, up until the Great Recession of 2018, were a niche financial product used by around a quarter of a million people a year. Four years later, following a wage squeeze which would effectively last for much of a decade, 1.8m Brits took out 8m payday loans in 2012 totalling £2.2bn in value.

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This situation began to change in 2017 and 2018 when incomes start to rise faster than inflation. How has this affected the UK payday loans market?

Wages growth among payday loan applicants

The average salary of a person applying for a payday loan rose to £1,462 in 2018 compared to £1,419 in 2017, a rise of 3.03%, slightly above the overall rise in wages in the economy of 2.9% in September 2018 (source: BBC). Housing expenditure costs rose slightly from £241 to £243.

During the same period, the average amount requested by applicants dropped from £412 to £394, possibly reflecting higher general pay and lower than expected household running costs.

However, this trend may not continue into 2019. 51.06% of applicants in 2018 were in the rented sector (down from 54.17% in 2017) however both private tenant and council tenant rents are expected to spike in price soon meaning that housing expenditure costs for payday loan applicants could jump significantly in 2019.

Employers and locations

CashLady records the names of the employers that its applicants work for as part of its decision-making process. The most frequently occurring types of employee are public sector bodies, supermarkets, fast food establishments, courier companies, hospitality, fulfilment, and retail.

For 2017 and 2018, employees working for the NHS outnumbered employees working for other firms applying for a payday loan with CashLady. The British Army appeared in 5th place (6th in 2017). Tesco, Asda, Sainsburys, McDonalds, Morrisons, the Co Operative, the Royal Mail and DHL all featured prominently in the top 10 in both the 2017 and 2018 surveys.

The biggest demand for payday loans came from London in 2017 and 2018, in both years followed by Manchester in second place. In fact, across the two years, the same 10 cities appeared in Cash Lady’s findings, this year Birmingham beating Glasgow into 3rd place.

Why people take out payday loans

Nearly a quarter of people take out payday loans to cover an unexpected expense, 19% to pay their bills, and 11% to fix their car or van. A surprisingly high 13% take out payday loans to pay for a special occasion – something Cash Lady and other responsible lenders or brokers specifically advice applicants from doing.

In both years, just over 3% took out a payday loan to help them cover a temporary reduction in their income. However, there was a large fall in the numbers taking out payday loans to help them to meet their rent or mortgage payment.