Over three million people across the UK may have been forced to borrow from illegal lenders in the last 12 months, according to new research from responsible lender Creditspring.
A third (31 per cent) of people in the UK currently feel stuck and feel there is nothing they can do to improve their financial situation, Creditspring revealed. This situation has led to six per cent of UK adults borrowing from illegal lenders in the past 12 months alone.
Nineteen per cent of respondents (equivalent to around 611,000 people) revealed they had to turn to illegal lending options as they needed the money for everyday expenses such as food and household bills whilst 15 per cent needed the loan to afford their rent or mortgage.
Another 16 per cent of people admitted that they were aware they were using an illegal lender but had no other option after they were refused credit from regulated lenders.
Unfortunately, illegal lending often carries an element of danger and risk to borrowers. In fact, 15 per cent of people said that the interest originally agreed upon increased over time – while 14 per cent were threatened with physical violence.
This situation isn’t helped by the fact that 15 per cent of people who borrowed from illegal lenders admit they don’t know how they’ll be able to repay these loans – with many likely to be forced to borrow even more to repay existing debts.
We need ‘greater access to responsible, short-term credit lending’
Neil Kadagathur, CEO at Creditspring, discussed the issues that come from borrowing from illegal lenders: “The cost of living crisis has decimated household finances across the UK and the growing reliance on the wild west of illegal lending is the starkest indicator yet of just how bleak the financial reality is for millions of people.
Neil Kadagathur, CEO of Creditspring
“Illegal lenders thrive on the desperation of borrowers who have exhausted all their mainstream options and are left with nowhere else to turn. These predatory lenders often offer extortionate interest rates and additional fees which borrowers have little choice but to accept – after all, if an illegal lender whacks on an unexpected charge, there is no formal complaints process to support borrowers. Plus, there are the horror stories of the hidden costs of illegal lending that can go even further than financial punishment.
“The need for greater access to responsible, short-term credit lending has never been clearer. It’s critical that providers offer clearer, more transparent and safer loans for borrowers who need a financial boost so they aren’t forced into the murky world of illegal lenders.”
Millions left without required support
Creditspring research also shows that younger people are much more likely to have to turn to illegal lenders than the older generation. Thirteen per cent of 18 to 34-year-olds admit they borrowed from unregulated lenders in the last 12 months, compared to five per cent of those aged 35-54 and just one per cent of over 55s.
Creditspring believes that the number of people forced to turn to illegal lending to get by is driven by the lack of affordable short-term credit options available. Over a quarter (27 per cent) of people say they turned to a high-cost credit lender this year as they were rejected by mainstream lenders.
Previous research from the Centre for Social Justice in 2022 estimated that 1.1 million people across England took loans from illegal lenders. Creditspring’s research indicates that reliance on illegal lenders has soared as the cost of living crisis has continued.
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