The Impact of High Cost Credit
There is a range of high cost credit - from payday loans to catalogues to doorstep lending. Citizens Advice Chesterfield has recently completed a briefing on the impacts of high cost credit.
The main types of high cost credit include:
- Short term credit (including payday loans)
- Home collected credit
- Catalogue credit
- Some rent-to-own
- Guarantor and logbook loans
- Other credit products, such as motor finance, credit cards and overdrafts, may be high-cost, particularly for less creditworthy customers or depending on how they are used.
There is no universal definition of high cost credit, but it can be said to be characterised by one or more of the following:
- Significantly high interest rates
- High overall cost
- Large regular repayment terms
Chesterfield Citizens Advice Summary of Evidence:
- The proportion of people they help with high cost credit money problems is increasing.
- Although there has been a reduction in payday loans since tougher regulation has been introduced, doorstep loans, catalogue and mail order high cost credit issues have increased.
- Lack of affordability of high cost credit can contribute to damaging multiple debt problems and poor mental wellbeing for users of high cost credit.
- The regulation and overall cap on the total cost of credit recently placed upon the Payday load sector should be extended to other high cost credit sectors.
- Action is taken to identify and address the wider causes and effects that lead to an undue reliance on high cost credit.
- Further support is made available for responsible forms of lending and saving.
- Greater investment is made in preventative and early intervention money skills coaching and debt advice support for people experiencing or at risk from problem indebtedness.
For a full copy of their briefing document, click here .