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Rising Dependence on Payday Loans Highlights Ongoing Financial Struggles
New research from Moneyhub has shed light on a concerning trend emerging in the UK; a significant number of Brits are increasingly resorting to payday loans in order to manage their day-to-day expenses.
These findings have revealed that in the past six months, more individuals have applied for payday loans (18%) than mortgages (10%), highlighting the precarious financial situation faced by many.
Of the 18% who applied for payday loans, 6% were accepted, with 4% being rejected outright and 8% being offered a different, more suitable product. Furthermore, over a quarter (27%) of respondents reportedly engaged in risky financial behaviour, such as missing credit card payments or defaulting on a personal loan in the last 12 months.
These findings highlight the urgent need for financial services providers to better identify and support vulnerable customers. While some applicants were directed to more appropriate financial products, the numbers indicate that this effort is not sufficient.
Suzanne Homewood, Managing Director of Decisioning at Moneyhub comments: “As more people become reliant on payday loans, it is crucial that providers spot risky financial behaviours and identify potentially vulnerable customers ahead of time.
“By moving away from traditional methods of credit checking, we’d likely see an increase in providers recommending better-suited products and services for their customers’ individual situations. This is because they will be able to understand their customer’s true and holistic financial world and identify potential risks. Not only will this help businesses ensure they are truly supporting customers and putting their best interests at heart and in line with consumer duty obligations, but prevent consumers from getting themselves into financial trouble through defaults.”
“Moneyhub’s Open Banking data insights provide lenders and collections teams with an incredibly clear view of an applicant’s ability to afford or continue to pay for the service or product. We want to see more organisations using services like this before they commit their customers to products that just aren’t suited to them. Financial vulnerability can’t be easily eradicated, but it can be positively impacted by using new tools available to them.”
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