Today, you can define the public as ‘instant society’. With 24/7 online services available people have become more demanding. People are equipped with Smartphones and need things in a click even short-term credit.

Even if the short-term lends come attached with a high cost, they use it to get funds quickly to purchase tickets for your favorite football game or theater or a gig before the sold outboard flashes. You suddenly come across a great holiday deal, which you don’t desire to miss because it will be unavailable, if you wait and, in the end, you will need to make a compromise on wherever you get and that too at an increased rate.

Besides, borrowers use it for some other reasons like council tax or utility bill payment that allows averting big debts. Managing the ups and downs of monthly income and expenses is a pain for millions but short-term credits are valuable for borrowers of this ‘instant’ society. It supports them to handle their monies as they desire.

How Do Payday Loans Actually Work?


The loans are intended to support individuals financially until payday. is a credible short-term lender and broker. The platform has many lenders prepared to offer funds on their specific terms.

Some of them allow customers to choose the repayment time regardless of when they get their salary. Even consumers with low income or poor credit scores can access it quickly. The compromise is that this kind of loan, accompany high-interest rate.

On approval of your application, the loan amount gets paid in your bank account within a few hours. On the due date, the repayment amount along with agreed interest is automatically transferred from your bank account to the lender’s account.

Cmas Payday Lending Sector’s 2015 Report Analysis

Competition and Markets Authority performed an investigation on the payday loaning sector in the year 2015. The Credit 2.0 report offers wide information regarding the lending industry. Let’s consider the analysis and get an insight into how and why the short-term lending sector is expensive.

An interest rate cap associated with payday loans got introduced to control the unregulated direct lenders. Payday loans are recognized as borrowing for unexpected financial emergencies. Unfortunately, its easy accessibility led to customers using it for their daily expenses like paying electricity bills, groceries, and car repairs. It means whenever they experienced a cash shortage, which is why 1/4th of payday loans got turned over into new debt terms. [For £100 loan the monthly charge is £24]

Characteristic of payday loan debtors


According to CMA loan data, the characteristic of payday credit debtors is –

  • Average credit amount – £260
  • Common borrowing amount – £100
  • 3 out of 4 people opt for 2 to 5 loans across a year
  • On average, a consumer takes six loans in one year
  • Demographics of consumers who opt for a payday advance – Bachelor [2 to 30 years], living in a rental apartment and having a monthly salary less than £1,500

Where do consumers get payday loans from?

According to the CMAs investigative reports –

  • 83% got through online direct lending services
  • 29% got a loan at the local lending shops
  • 12% of people have used both the channels

How do payday loans get used?

The purpose of the payday loan is to use for sudden financial emergencies, but the real picture is poles apart. The way individuals practice it is alarming.

  • 53% of consumers spend it on their living expenses like paying their monthly utility bills and purchasing groceries.
  • 2% declared that they opt for a payday loan to repay the other existing debt.
  • 10% use the loaned-out cash on their cars upgrading or repairs.
  • 7% enjoy the credit on shopping for clothes or other luxuries.

Reasons people look for payday loans

  • 52% – Borrowers choose payday credits because of an unanticipated surge in their expenditure.
  • 19% – Due to surprising cuts in their salary.
  • 93% – Saw the swing in fiscal status as a temporary thing, while 59% felt that without payday credit they would be unable to overcome the situation.
  • 24% – Debtors admitted that they would have restrained their buying habits if the payday loan was not easily accessible.

You can assume that consumers are susceptible. At present, they are in financial chaos and so spend the borrowed money for incorrect reasons. The truth is that borrowers are familiar with their finances, so are choosing a loan option to efficiently handle the fluctuations in their situation.

Payday loan status in 2018

After 2015 with an interest rate cap introduction, let’s look at how the payday credit segment got affected. The statistics divulge that the young populace is most likely to apply for payday credits.

  • 37% of debtors are between 25 to 34 years
  • 16.5% of consumers are within 45 to 54 years
  • 6.4% are above 55
  • 61% admit that they lack money management skills

Forecast of Consumer’s Credit Market in the UK


In 2020, the lending activities are predicted to increase by 5%, but the overall growth is claimed to stay flat around 4 to 5% until 2024. The variables that will steer the lending market across the next five years are –

Supply-side – Strict regulatory regime and stringent lending criteria towards unsecured loans will restrain the growth rate of supply up to 2024.

Demand-side – Due to slow economic growth, low productivity levels, and high existing household debts will curtail the demand for credit. Customer’s unwillingness to spend will badly affect the enthusiasm for lending. The key highlights include –

  • Banks are encouraged [by Financial Conduct Authority] to restructure their overdraft policy, which can force consumers to alter their spending behaviors and thus avoid expensive borrowing.
  • In 2019, the motor finance market collapsed by 3.1%. The sales of new cars decreased, and the market is predicted to see a high-level of pre-owned vehicles enter the market in the coming few years that will bring prices down.
  • The last four years’ payday lending arena has seen a fall down because of tough regulations and complete affordability checks. Due to which several lending providers quit the market. However, it will recover across the forecasted period.