What kind of person takes out a payday loan? The answer you will often receive from commentators is that low-income, vulnerable customers are the common prey for vulturous, unscrupulous lenders looking to leverage their high-interest products across the most financially vulnerable members of society.
And whilst low-income workers undoubtedly make up large swathes of the population who are in constant need of emergency finance, the fact of the matter is that times are changing and so is the face of the typical payday loan customer.
As reported a few months back lenders have been tightening their scorecards and made very definite changes to the types of customer they are willing to lend to. No longer are lenders willing to lend money to anybody with a detectable heartbeat. Regulatory changes and focused efforts on compliance have meant that affordability is the key driver of underwriting decisions.
Making sure customers can comfortably afford to pay you back is the no.1 priority.
So given the changes, high-cost loan providers have had to make, the turbulence in the global economies and of course uncertainty around Brexit, what type of customers are UK lenders now dealing with?
UK based credit broker MoneyGap has recently analysed over 1.3m loan applications from 2015 – 2019. During these 4 years, they have recorded employment information with categories for various industries. The findings have raised a few eyebrows.
Since 2015, they have seen a 19% increase in short term loan applications from mid-level and senior-level managerial positions. The increase is not a measure of actual volume, rather the increase as a percentage of total applications received each year.
This means that UK citizens holding full time, well-paid positions are still unable to regularly afford their monthly outgoings.
Yet the same data sources show a 20% decline in applications from Military professionals and factory workers, a 14% drop for supermarket and retail staff and a massive 25% decrease from employees involved with manual labour jobs.
Other industries such as education, utilities and telecoms have remained fairly flat.
See the full breakdown of the 2015-2019 Short Term Loan Employment Industry Analysis.
Probably the most surprising trend to come from the data presented is the stark difference between ‘lower income’ workers and those on higher payscales.
Labour roles, factory workers, even hotel and restaurant staff all seem to have reduced their reliance on short term credit. Potentially this could be partly due to the recent introductions of a ‘living wage’ but in 2018, this would have benefitted just 180,000 workers across the UK. But whilst the 2.9% increase is above inflation (currently around 2.4%%), it will not have been life-changing.
Perhaps those who have been feeling the pinch most since 2008 have changed their spending habits, either out of recognition or necessity, so they are no longer reliant on short term lending?
But how do we explain the sharp increase in loan applications from people in professional and managerial roles? After all, these are theoretically people with more expendable income?
Whilst the cost of living may have risen since 2015, many people have benefitted from incredibly low mortgage rates. Is middle England simply living beyond its means and burying its head in the sand whilst the financial fallout of austerity and erosion of market confidence threatens to impact future job securities?
It will be interesting to see if MoneyGap publish this data again in the future as it seems the face of the typical payday loan customer is changing rapidly.