IRN find fourfold increase in the numbers using payday lending

IRN Research was one of the two research*1 companies commissioned by Consumer Focus*2 to research the payday lending market. Payday loans are short-term loans typically repaid on the customer’s next payday often with a post-dated cheque or authorisation to make an automatic withdrawal from the customer’s account.  

IRN calculated the size of the market, its trends over the past five years and analysed the major players. IRN also undertook a detailed literature search on the market in the UK and US, presenting to Consumer Focus findings as to the likely impact of a ban on such loans, the imposition of APR caps or limits to the number of loans a consumer should be allowed to take out each year.

Based on our research findings Consumer Focus produced a report ‘Keeping the Plates Spinning*3 , which showed that the number of people using payday loans has increased fourfold since 2006 to 1.2 million people, borrowing a combined £1.2 billion. Charges typically range from £13-£18 interest for every £100 borrowed, but can be as high as £30 per £100 for some online providers. This can generate APRs in the region of 1000% to 2000% given the short-term nature of these loans.

Other key findings from the new research show:
•    Last year, the average size of a payday loan was an estimated £294
•    An estimated two thirds of payday loan borrowers have a household income of less than £25,000
•    Payday loan users tend to be young and single. It is estimated that over half of borrowers are under the age of 35 and 60 per cent are not married or cohabiting
•    Payday loan borrowers are taking out an average of 3.5 loans a year.

Based on our research, Consumer Focus is urging a precautionary approach from industry and regulators to stop borrowers becoming dependent on this form of high interest credit. But with limited alternatives available from mainstream lenders, Consumer Focus believes reform of the UK  is required rather than an outright ban.

About IRN Research
IRN Research is a full-service market research consultancy and a member of the Market Research Society (MRS). IRN offers a range of research services focusing on consumer finances. For further information contact Gary Giddings on 0121 635 5210  or ggiddings@irn-research.com.
IRN Research, Concorde House, Trinity Park, Solihull, Birmingham, B37 7UQ
Tel: +44(0)121 635 5210  +44(0)121 635 5210 Fax: +44(0)121 635 5211. URL: www.irn-research.com

1* Synovate also conducted in-depth face-to-face interviews with 20 borrowers in London, Leeds and Glasgow.
2* Consumer Focus is the consumer champion for England, Wales, Scotland and (for postal consumers) Northern Ireland.
3* A link to a copy of the full here: http://www.consumerfocus.org.uk/assets/1/files/2010/08/Keeping-the-plates-spinning1.pdf