Citizens Advice Scotland have said a major factor in the growth of personal debt in Scotland is cases of people taking out one loan to pay off another. CAS also says many lenders encourage this – despite pledges not to do so.
Figures published today by the Debt Advisory Centre Scotland (DACS) show that nearly 160,000 Scots borrowed money to make a loan repayment in July. DACS also found that Scots aged 25-34 were the most likely to do this, with men more likely than women. The full DACS press release is re-produced below.
Responding, Citizens Advice Scotland’s Chief Executive Margaret Lynch says,
“Sadly, ‘roll-over’ loans are a common problem in the debt cases we see in the CAB service. The pattern is very familiar. You are short of money one month, so you take out a quick payday loan, but the interest rates are so high you soon find can’t repay it, so you have to take out another loan to pay it off, and then another one to repay that one. Soon you have three or four or more loans on the go, all of them paying off each other, and all of them building up late fees and high interest.
“It’s a vicious cycle, and people quickly lose control. This is what we mean when we talk about people ‘drowning in debt’, and sadly it is very common in the cases we see at the CAB service. We’re not surprised either by the finding that it is mainly young people who get into this position, because this fits with our advisers’ experience.
“One of the worst aspects of this is that some lenders deliberately target vulnerable people with roll-over loans. This is where, for example, a customer contacts the company to say they can’t make a payment, and the company responds by offering them another loan. Lenders are not supposed to do this, but we see evidence that many still do. This is the sort of thing that we need to stamp out.
“If you are in debt, the answer is not to take out more loans. What you should so instead is get help. The CAB service offers free, confidential and impartial advice, and our expert debt advisers will help you get control of your debts, no matter how bad they seem. Contact your local CAB office or call our consumer advice line on 08454 040 506.”
Notes to editors - click to expand/collapse
This CAS Press Release is a response to one issued today by the Debt Advisory Centre Scotland.
This is reproduced in full below.
Scots take out new loans to make debt payments
- 6% of Scots aged 25 to 34 took out credit to make repayments to existing debts in July
- Nearly 160,000 Scots of all ages (3%) borrowed money to make a repayment
- Men were more likely to borrow to repay debt than women (3%, compared with 2%)
Nearly 160,000 Scots, or 3% of the population, borrowed money to make a repayment on an existing debt in July, according to research by Debt Advisory Centre Scotland (https://www.debtadvisorycentre.co.uk).
People aged 25 to 34 were most likely to take out new loans, including payday loans, to make payments towards old ones, with 6% of respondents in this age group admitting they'd done this.
Publication of the findings follows the announcement by the Financial Conduct Authority that it plans to introduce tougher regulation for payday lenders. One of the proposed new rules is that all borrowers should have an 'affordability check' before being given a loan by a payday lender, meaning anyone taking out a loan would need to show they could repay it.
Yet debt payments aren't the only expense causing Scots to turn to lenders. Other research from DAC Scotland indicates that 3% had borrowed to make July's mortgage or rent payment, while 4% had borrowed to pay a utility bill.
Most worrying of all, a full 10% of Scottish residents borrowed money to pay for food in July.
Ian Williams of Debt Advisory Centre Scotland commented:
“The steep increase in the number of payday lenders in the past couple of years has made it increasingly easy to borrow when you run out of money.
“But taking out more debt to pay off an existing loan can be a dangerous thing to do. You could end up paying even more in charges and interest, adding to your problems. And if you can’t afford to pay off one loan one month, there's no reason to think repaying two loans the next month will be any easier.
“If you are struggling to make repayments on a debt, contact your lender as soon as possible to discuss your situation. The lender may agree to a repayment plan that freezes interest and enables you to spread repayments over a longer time period.
“If that doesn’t work, you should seek help from experts in managing debt.”
Consumer Intelligence carried out online interviews between 31st July and 5th August 2013 with a nationally representative sample of 2,202 UK adults, 443 of whom were Scottish residents. Figures have been extrapolated to fit 2011 Census figures showing 5.295million adults in Scotland.
For more information, visit the Debt Advisory Centre Scotland website at https://www.debtadvisorycentre.co.uk.
Debt Advisory Centre Scotland
Tel: 07855 214851