More turn to payday loans as debtor numbers jump

Nearly 150,000 households in Scotland are in deep financial difficulties and spending more than half their income on debt repayments, the Consumer Credit Counselling Service has estimated.

The debt advice charity told The Scotsman that it has seen a 285 per cent increase since 2009 in the number of its clients in Scotland who have taken out payday loans.

The use of the often extortionate short-term loans has soared as earnings have stagnated, household costs have risen and affordable means of credit have become less accessible.

The number of Scots going to CCCS for help with debts has more than doubled since 2005, reaching 5,021 last year. On average they owe £17,350 on credit cards, loans and other unsecured debt.

Particularly stark among the findings is the rapid growth in the use of payday loans. Scottish CCCS clients to have gone down this route hold 2.37 payday loans on average, up from 1.65 just three years ago. The increase shows that not only are more people taking out payday loans, but that they are struggling to repay them and being forced to take on yet more expensive debt.

The CCCS described the rise in the use of payday loans in Scotland as “an extremely concerning trend”. “People’s budgets are being put under increasing strain as wages remain stagnant as the cost of living continues to increase,” a spokesman for the charity said.

“Many households are being pushed beyond financial breaking-point and are turning to credit cards, overdrafts and sometimes payday loans just to make ends meet.”

He urged anyone struggling with debts to seek free and impartial advice from charities such as CCCS and Citizens Advice.

The latter said the new figures from the CCCS supported its own worrying evidence of Scots getting into difficulties with payday loans.

Margaret Lynch, chief executive of Citizens Advice Scotland, said: “We see thousands of people coming to their local bureau every year for advice on payday loans. Many are struggling to pay back their loan because of the incredibly high interest rates and late payment charges and they can soon find themselves a spiral of debt.”

The CCCS research comes a week after Santander reported that almost one in three Britons use credit cards, overdrafts and payday loans to help pay their household bills each month.

And a recent survey by insolvency trade body R3 found that more than half of Scots struggle to make it to payday. Of that group, 11 per cent are getting bogged down by repayments on payday loans and other expensive, short-term debt.

John Hall, Scottish council member for R3, said payday lenders were benefiting from a lack of affordable finance on the high street for borrowers who have struggled to repay previous debt.

“These individuals will be at their maximum level for loans, overdrafts, credit card debt and other forms of credit,” said Hall. “It is at this point that they may to turn to unconventional lenders such as payday loan companies.”

He warned that the use of payday loans would continue growing as household finances are stretched.