Most payday loans used for ‘everyday expenses’, not just ‘emergencies’

The most popular use of a payday loan is for everyday expenses like groceries and not just for emergencies like fixing a boiler or repairing a car, according to new polling for the think tank IPPR. In a report to be published in the New Year, IPPR analysis shows a worrying trend that the most common use of payday loans is now not to plug the gap at the end of an expensive month or even to deal with emergencies but to pay for everyday expenses, such as groceries, gas, electric and water bills.
 
The new polling shows that more than two out five borrowers (41 per cent) are using payday loans to pay for everyday expenses such as groceries. Almost a third of borrowers (32 per cent) are using payday loans to pay utility bills, like gas and electricity. While one in five borrowers (22 per cent) have funded Christmas presents and food. The polling also shows that more than a third of borrowers (35 per cent) use payday loans in an emergency.
 
Analysis from IPPR shows that younger and older people appear to be taking out payday loans and other forms of high cost short-term credit for broadly similar things but that younger people are three times more likely than older people to use them to pay for a night out, and five times more likely to pay for their mobile phone bills.
 
IPPR says that people need better alternatives to expensive payday lenders and that banks need to become more accessible and flexible, while credit unions need to do more to modernise their services.
 
Mathew Lawrence, Research Fellow at IPPR, said: “The fact that people are using payday loans to cover predictable expenses shows that it is not a financial planning problem they face but a problem of making ends meet. In a worrying new trend, young people are using payday loans to cover everyday expenses like their phone bills and rent, as well as their groceries and utility bills.
 
“We need better alternatives for borrowers that provide more options when it comes to length of loan and repayment options and affordability. People are using payday loans for everyday recurring expenses even more often than one-off emergency expenses, so gradual repayment methods that don’t come with a Scrooge-sized price tag need to be available. We need to do a lot more to promote these affordable alternatives, not just focus on regulating on the payday industry.”