Citizens Advice Bassetlaw warns of pitfalls of high-cost credit

by | 18 June 2018 | Citizens Advice, Retford, Worksop

Sarah came to seek advice after falling into debt when her partner had an accident and could no longer work nor — as an immigrant — claim benefit. With a sudden drop in income and two young children to provide for, things started to get out of control.

Despite a monthly deficit of £500, Sarah was able to obtain a television through a rent-to-own shop. The monthly payments of £100 were simply not affordable.

Karen Whitlam, Chief Executive Officer at Citizens Advice Bassetlaw, said Sarah’s experience is not uncommon for people they help with high-cost credit debts such as doorstep loans and rent-to-own agreements. Low wage growth coupled with a rise in the cost of living means that people on low or insecure incomes are finding it hard to stretch their budgets, pushing many into using high-cost credit to get by.

“People who come to us for help with doorstep loans and rent-to-own contracts are often those who are struggling the most with debt. People usually end up using these loans because they have nowhere else to turn, and providers of high-cost credit are the only ones who will lend to them,” Karen added.

Statistics released by national Citizens Advice in February revealed people with insecure incomes are five times more likely than the rest of the population to use high-cost credit products.

Sarah was advised to return the television to the lender to reduce her spending, look for additional hours at work to up her income, and is now considering a debt relief order to reduce the financial burden on the family.

On a national level, the numbers are stark. Some 700,000 people took out a doorstep loan in 2016. At the end of that year, 1.6 million people had outstanding debt with an overall value of £1.1 billion. Although fewer people have taken out doorstep loans in recent years, those that do are borrowing more. In 2015, the average value of a new loan was £710, by 2016 this had risen 9% to £770.

High-cost credit is part of a larger debt picture. People who came to Citizens Advice for help with their home credit debts hold a median of £6,878 in outstanding debt. One third of their clients had outstanding debt on two or more doorstep loans. Those who sought help with their rent-to-own agreements typically held debts totalling £8,000.
To safeguard the vulnerable consumers who are more likely to use high-cost credit, Citizens Advice is now calling for cap on doorstep loans and rent-to-own products, so people do not pay back more than twice what they borrowed.
A similar cap has been successfully used on payday loans. Citizens Advice saw a fall in people needing help with unaffordable payday loan debts by around half, from more than 16,000 people in 2013-14 to less than 9,000 last year.

Citizens Advice Bassetlaw

  • The Annexe, Queens Building,
    Potter Street, Worksop
    Open Door Advice Sessions:
    Monday and Wednesday
    9.30am to 2.30pm
    Friday 9.30am to 1.00pm
    Adviceline: 03444 111 444
  • 17b The Square, Retford
    Open Door Advice Sessions:
    Tuesdays and Thursdays
    10.00am to 2.00pm