CCTA summary: Elevate Report

White Papers | 19/11/17

The report has been commissioned by Elevate Credit International, provider of Sunny loans and produced by think tank, Social Market Foundation. It reflects the results of a survey conducted in August 2017 with 1,000 users and 1,000 non users of short term credit.

The purpose of the survey was to gauge their attitudes to short- term credit, who uses such credit and what roles it plays in their financial lives.  The report also draws on other data sources and its overall aim is to provide new insight for discussion in this area.

The report showed a discrepancy between perceptions and realities when it comes to users of short term credit.  It claims that in contrast to general views, HCSTC users are employed with a median gross household income of £25,558 of the last 3 years and consider themselves financially comfortable but use HCSTC to purchase essentials.

They have bank accounts but need access to money quickly. They have a lack of financial support from family – both factors are key drivers in short-term credit demand.  These demographics are consistent with what Sunny know of their own customers.

Overall the survey results suggest improvements have been made within the industry since the introduction of the cap; for example borrower’s household incomes are on a par with the average UK household income and acceptance rates for short term loans have declined.

The FCA note that in 2013 1.7m people took out a short term credit loans worth £2.5bn but in 2016 this had decreased to 760,000 people taking out loans worth slightly over £1bn.

The research does indicate some improvements are still required within the HCSTC market, as the cost of borrowing and unexpected fees are commonly-cited downsides thus highlighting the need for transparency. The report suggests that this may partly lie with lenders who use hidden fees or charges such as for late payment.

Bullet Points
•       83% of the 1,000 short term users surveyed were employed; with 81% on a full time basis.
•       Users were employed across a range of industries with retail/wholesale making up 20%.
•       Users had a slightly lower average income than non-users.  Users over the last 3 years users had a median gross household income of £35,558 – only 6% lower than the £27,200 across all UK households.
•       The majority of short-term credit users described themselves as “coping” (42%), “comfortable” (29%) or “very comfortable” (13%).
•       46% of users surveyed were home owners.
•       44% of users were aged 18-34.
•       Users were more likely than non-users to have dependents.  The mean number of dependents of the users surveyed was 1.7 compared to 0.7 for non-short term credit users.
•       49% of people said they had used a short term loan in the past 3 years to access money quickly.
•       The most commonly cited reasons were paying a household bill (24%), an essential repair (22%) and daily expenses (20%).
•       Of the surveyed users, 82% had used a loan 3 times or less over the last 3 years.
•       22% of those surveyed said their credit score would not allow them to access a loan from a mainstream bank.
•       21% said if they had been unable to access credit it would have led to hardship for themselves and their family,
•       22% would look to use their bank while 14% would see funding from an unlicensed lender.
•       When asked about perceptions, 64% of users thought this form of finance was helpful, ad 53% thought there was an unfair stigma attached to it.
•       However while 81% agreed with at least one positive statement ( e.g quick access to cash, it is a useful service) there was still 82% who agreed with a negative statement such as “too easily available” or “the costs of borrowing”
•       55% of the users and non-users surveyed claimed to understand how APR is calculated.
•       However when asked to calculate interest on a 6 month loan on £100 with an APR of 1200% and monthly instalments, only 10% gave the right answer of around £100.  Users (15%) were more likely to get it right than non-users (5%).