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Lack of credit access forces 6% of UK adults to turn to loan sharks

The UK’s credit crisis has led to a surge in illegal lending, with 2.8 million people in the last 12 months, especially the youth, trapped in debt cycles and facing predatory loan sharks, according to new research from responsible lender Creditspring.

  • Marina Mouka
  • May 21, 2024
  • 3 minutes

In the UK, the struggle to access affordable credit has led to a shocking number of people resorting to illegal lenders, commonly known as loan sharks. Recent research by responsible lender Creditspring reveals that over 3 million British people have been forced to borrow from illegal lenders in the past year alone. This situation is exacerbated by the fact that a third of UK adults feel trapped with no means to improve their financial situation.

Specifically, the reasons cited behind this trend are concerning: a third (31%) of people in the UK currently feel stuck and feel there is nothing they can do to improve their financial situation, Creditspring revealed. Additionally, around 19% of individuals (equivalent to around 611,000 people) cite that the need for everyday expenses like food and household bills forced them to had turn to illegal lending options, while 15% require loans to cover rent or mortgage payments. Moreover, a significant portion of borrowers, approximately 16%, are aware they are using illegal lenders but feel they have no other recourse after being denied credit from regulated sources.

The risks associated with illegal lending are critical, with 15% of borrowers uncertain about how they will repay their loans, potentially leading to a cycle of further borrowing. The situation is particularly dire for younger demographics, with 13% of 18-34 year-olds resorting to unregulated lenders compared to 5% of those aged 35-54 and just 1% of those over 55.

The rise of loan sharks

The root cause of this reliance on illegal lending stems from the lack of accessible short-term credit options. A significant portion of borrowers, nearly 27%, have turned to high-cost credit lenders after being rejected by mainstream financial institutions. This underscores a systemic failure in providing affordable credit to those in need.

Neil Kadagathur, CEO at Creditspring commented, “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.”

“Loan sharks 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 a financial punishment.”

The need for ‘greater access to responsible, short-term credit lending’

Creditspring’s findings echo previous research from the Centre for Social Justice, which estimated that 1.1 million people across England had taken loans from illegal lenders in 2022. The situation has only worsened since then, with the cost of living crisis amplifying the reliance on illegal lending.

In light of these alarming statistics, urgent systemic reforms are needed to address the root causes of this crisis and ensure that all individuals have access to fair and affordable credit options.

“The need for greater access for 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,” said Kadagathur.