Millions turning to ‘payday’ loans, as levels of debt concern and ‘zombie’ debtors rise sharply

New research by insolvency trade body R3 suggests that nearly half the population (45%) struggle to make it to 'payday'. As a consequence, 3.5 million adults are now considering taking out a payday loan over the next 6 months.

Debt Worries

R3's research also shows that among those who had taken a payday loan, 60% regret the decision and 48% believe the loan has made their financial situation worse. Only 13% believe their payday loan had a positive impact on their finances.

Jeremy Oddie, Corporate Recovery and Insolvency Partner and North West Chairman of R3 said; "Payday loans will never resolve debt struggles. Inevitably individuals will fail to repay these loans, thus making their position worse".

The report also finds that so called 'zombie' debtors are a group on the increase.

A 'zombie' debtor is someone who pays only the interest charges on their debt and not the debt itself. The research suggests that one in six individuals are currently only able to pay the interest on their debt rather than paying off the debt itself. This breaks down into 11% of who are only servicing debt on their credit cards, and 9% who are only paying the interest charges on their overdraft.

Mr Oddie said; "For individuals caught in the zombie debtor trap, there will be no reprieve as interest rates, whilst low at the moment, are not in relation to credit card and payday loans. A person with this type of debt has no opportunity to obtain any form of credit at a more reasonable interest rate."

This quarter's Personal Debt Snapshot, run by R3, also found the highest ever levels of concern over debt, with nearly two thirds (60%) of individuals worried about their debt levels. According to R3, this is an increase of 13 percentage points on July's figure and 21 percentage points up on the same time last year.

Savings are also at a very low level as a consequence of rising debt concerns. The number of individuals with no savings at all has risen sharply from 19% last quarter to 27% this quarter. Overall, 40% of the population is saving less at the moment than usual, compared to 27% of the population a year ago.

"Individuals faced with these terrible difficulties should immediately seek financial advice to seek long term solutions which will enable them to deal with their issues and to stop them spiralling into the associated and often escalating problems of long term debt" said Mr Oddie.

If you or your business is in a difficult or worsening financial situation, contact Mitchell Charlesworth's Corporate Recovery and Insolvency team today to find out how we can help before your situation becomes untenable. Insolvency is always the last option and people are often surprised by the options available to them.

Call CR&I Partner Jeremy Oddie on tel: 0161 817 6100 or complete this quick enquiry form.

Post a comment

Registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales and authorised and regulated by the Financial Conduct Authority for investment business