Pay day loan market may treble in size, warns Datamonitor
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UK consumers are becoming increasingly reliant on pay day loans with gross lending set to escalate from £1.2bn in 2009 to £2.7bn in 2010 and possibly as high as £3.5bn by 2014 predicts Datamonitor.
Research by the independent business analyst has revealed that this growth will be driven by a shift in employment patterns brought about by the economic downturn.
Daoud Fakhri, analyst at Datamonitor, says: “There has been an increase in the number of people working part-time and by the hour which has meant that there’s been a greater fluctuation in pay leading to cash flow problems for many consumers.
“The amount we’re being paid an hour has also been put under scrutiny as employers have faced increasing economic pressure which has all contributed to a squeeze on household budgets.
“With this trend in employment likely to continue for at least the next two years, consumers have changed their attitude to debt and are now more cautious of taking out larger, longer term loans. Therefore pay day loans are rapidly coming into their own as a source of credit for consumers needing small amounts of cash to tide them over.”
Fakhri says it is clear that consumers are very wary of borrowing large amounts while the economy is looking uncertain. Therefore pay day loans will provide an alternative solution by helping consumers in the short term.
He adds: “There are no signs that this reliance on the quick fix loan will slow within the next two years, and as a result many more lenders specializing in short term loans are likely to enter the market. This may be good news for consumers as with this will increase competition resulting in better rates and deals.
“It is unlikely that we’ll return to our reliance on secured and non secured loans in, significant numbers, any time soon. These markets have suffered catastrophic falls in gross lending. In the case of secured loans there’s been a fall of 95% in gross lending since 2006. Therefore it will be some time before consumers can return to this type of lending.”
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Readers' comments (1)
Dazed & Confused | 12 Oct 2010 11:17 am
Maybe this is an area that the FSA should start to concentrate on? This and credit cards perhaps?
No, no...don't be daft! The mortgage market represents FAR easier pickings!
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