More UK households are turning to high-cost lenders, says charity
Struggling UK households are turning to high-cost lenders in growing numbers as the cost of living crisis leaves them unable to pay their bills, anti-poverty charities have warned.
It comes as the subprime lender Amigo, which has agreed to pay compensation to customers sold unaffordable loans, revealed plans to launch using a new brand called RewardRate. It wants to offer a personal loan with an annual interest rate of 49.9% and a guarantor loan at 39.9%.
The high-cost credit industry, which includes doorstep, guarantor and payday loans, lends to people with poor credit scores who might not be approved by traditional lenders.
The loans have high annual percentage rates, meaning people end up paying back much more than they borrowed.
Charities expect more people to become reliant on this type of debt, with high-cost borrowers already more likely to be in arrears or struggling to pay for essentials.
Rachelle Earwaker, a senior economist at the anti-poverty charity the Joseph Rowntree Foundation, said that more than one in 10 low-income households – a figure of 1.3 million – had already taken on credit in order to pay their bills “but what we’ve also seen is that 870,000 households are planning on doing that in the coming months”.
She said: “I think that gives you an indication of what is to come. We’re now seeing some of the impact of high prices but a lot of that won’t have kicked in yet, so I think it absolutely will get worse before it gets better.”
Amigo, which almost went bust last year, stopped lending in 2020 to deal with mis-selling complaints. The new loans require the approval of the FCA before they are made available. Borrowers can reduce the headline interest rate if they pay on time and can also freeze a payment once
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