5% of Families Rely On Controversial Payday Loans, According to Authoritative Report.

July 11, 2013

Luke-Notley small (Custom)One in 20 families is relying on payday loans according to the Aviva Family Finances Report released this week.

The report, which tracks the financial circumstances of UK families, found that more and more people are turning to unsecured loans, despite the gradual increase of household incomes and family saving habits.

The report comes just two weeks after the Office of Fair Trading (OFT) referred the payday loan industry to the Competition Commission with evidence of “widespread irresponsible lending”.

And just last week the Financial Conduct Authority (FCA), who are to take over the sector in April 2014, warned that it was considering a total advertising ban for such loans.

The Aviva report also found that average household debt, not including mortgages, has jumped from £9,314 in May 2012 to the current figure of £12,834, the highest since the report series began in January 2011.

The biggest debts are from loans from friends and family (£2,011) plus credit card debt (£2,006) and personal loans (£1,959). As well as the 5% of families that now rely on payday loans, a further 1 in 33 (3%) are using pawnbrokers.

However, less than half of families (45%) are making monthly debt repayments, a drop from 57% in August 2012.

Despite these figures, Aviva reported that the amount of families trying to put money away in savings has increased, with less than one third saving nothing each month.

It found that the average monthly net income was £2,108, which is 5% more than a year ago. The average family is now putting £96 a month away, which is another high for Aviva’s series.

The report also found that UK families are cutting back on luxury items such as satellite TV subscriptions, recreation and holidays. However, the average household’s food shopping has gone up £14 a month in the last six months,

According to Louise Colley, protection distribution director for Aviva, “Since we began our report series, we’ve seen a common thread of people juggling their finances to balance the family books. As money matters improve in one area, this is often offset in another – and this edition is no different. It’s great to see that families are saving more than ever, but slightly concerning that debt levels are continuing to climb.

“Building a savings pot is a fantastic step, but if debts are growing, families need to consider which is the more pressing need. We’d also urge people to take further steps and think about family protection to cover them against a sudden loss of income. Notably 55% of families say that unexpected expenses are one of their biggest financial fears so having this cover in place can provide invaluable peace of mind.”

Peter Tutton, head of policy for debt charity StepChange, said the report showed how fragile many household budgets are becoming.

“That 5pc of families now rely on payday loans highlights how for a substantial proportion of the population simply meeting essential living costs is becoming increasingly unaffordable.

“While the increase in average incomes should provide some respite for families’ finances, the reality remains that we are seeing increasing numbers of people falling behind on essential bills like rent, gas and electricity and council tax.”