Consumers borrow £1.3bn in short-term loans – and repay more than £2bn

Consumers borrow £1.3 billion per year in high-cost short-term credit such as payday loans – and pay back £2.1 billion – the City regulator has found.

For the year July 1 2017 to June 30 2018, the total value of loans originated was just under £1.3 billion and the total amount payable was £2.1 billion, according to the Financial Conduct Authority (FCA).

The total amount payable by the borrower is the sum of the amount borrowed plus the total charges payable, such as interest.

These are non-mortgage loans charging annual interest rates of 100% or more where the money is generally due to be paid back within 12 months.

The average borrower was due to repay just over one-and-a-half times the amount of the original sum lent to them.

The average loan value was £250 – and the typical amount consumers were due to pay back was £413 – 1.65 times the average amount borrowed.

The FCA said lending volumes in the high-cost short-term credit market remain well below the levels seen in 2013, but have increased since 2016.

A crackdown on payday lenders has taken place in recent years, including limiting the number of times lenders are allowed to roll over loans and capping the cost of borrowing.

More than 5.4 million short-term high-cost loans were made in the year to June 30 2018, the FCA said.

People in the North West of England were found to be particularly likely to take out short-term high-cost loans, while those in Northern Ireland were particularly unlikely.

The FCA said credit unions tend to be more commonly used in Northern Ireland, which may be a factor.

The regulator said the costs of borrowing are generally lower than before the payday loans price cap.

The research also found that two-thirds (67%) of payday loan borrowers are over-indebted compared with 15% of UK adults generally.

Payday loan borrowers tend to be young, with more than a third (37%) aged between 25 and 34.

And 37% of high-cost short-term credit borrowers are tenants (including council tenants), while just over a quarter (26%) are living with parents.

The FCA took over responsibility for regulating consumer credit activities in 2014 and has recently been shining a spotlight on the high-cost credit sector.