Young people more likely to fall into debt with loan sharks as data shows increased use of illegal loans

According to data, an increasing number of people are forced to take out loans from illegal moneylenders due to a lack of available and affordable credit options.

According to research by Creditspring, up to 31 per cent of people in Britain say they feel there is nothing they can do to improve their financial situation.

As a result of this, it is believed that 6 per cent of Britons turned to loan sharks to make ends meet last year alone.

This is equivalent to 2.8 million people, according to 2021 population figures. By comparison, an estimated 1.08 million people turned to loan sharks in 2022, according to the Center for Social Justice.

While an increasing number are forced to turn to illegal moneylenders to make ends meet, it is younger people who are most likely to fall into debt with a loan shark: 13 percent of those under 35 say having borrowed from an illegal lender. .

This compares to 5 percent of those aged 35 to 54, and just 1 percent of those aged 55 and older.

The problem among younger generations is probably related to the fact that the youngest in society find it much more difficult to get approved for credit.

According to data from the Money and Pensions Service, a tenth of people aged 25 to 44 are denied credit, compared to just 2 per cent of people aged over 55.

Similarly, about 14 percent of renters (the vast majority of whom are under 55) are denied credit, while only five percent of people with a mortgage have no credit applications. approved.

More than a third of young adults think they are now more financially unstable than ever, while, on average, only 28 percent of adults agree.

Neil Kadagathur, CEO of Creditspring, said: “With nowhere else to turn, these young people are faced with exorbitant interest rates and additional fees that they have no choice but to accept.”

‘This will also have a long-term impact as these borrowers will go deeper into debt with increasingly limited options.

“It is essential that providers offer clearer, more transparent and secure loans to borrowers who need a financial boost so as not to be forced into the murky world of illegal moneylenders.”

While inflation is now falling and interest rates have stabilized, the global economy is still reeling from wave after wave of economic shocks, from the pandemic to global conflicts.

Because of this, pockets remain tight and wallets feel lighter than ever as people across the UK continue to struggle.

Matt Hartley, of the Money Advice Trust, which runs the National Debtline charity, told This is Money: ‘High costs have forced many people to turn to credit to fill gaps in their finances. And for people who cannot access affordable credit options, this means a higher risk of turning to illegal lenders.’

A fifth of those who took out loans from illegal moneylenders said they did so to pay for everyday expenses such as food and bills.

Overall, the need to take out a loan has become increasingly common: 17 percent already expect they will have no choice but to take out a loan when they run out of savings.

Unsurprisingly, this figure is even higher, 25 percent, for those between 18 and 34 years old.

Kadagathur said: ‘As we begin to emerge from the worst of the cost of living crisis, the precarious state of the UK’s financial health is extremely alarming.

‘Borrowers desperately need affordable short-term credit options and this gap in the market is increasingly pushing people towards illegal and predatory lenders.

Friendly exterior: The Money Advice Trust warns that loan sharks will appear friendly at first, but can become violent if you don’t pay

“It is appalling that although these borrowers are often aware of the risks of turning to illegal lenders, ranging from extortionate and crippling interest rates to threats of violence, they feel they have nowhere to turn after being rejected by lenders. conventional”.

Loan sharks take advantage of their victims, often increasing pre-agreed interest rates, something experienced by 15 percent of those surveyed.

However, for 14 percent, loan sharks also resorted to threats of violence when they could not pay.

“No matter how friendly they may seem at first, loan sharks often resort to violence and intimidation and are extremely dangerous people,” Hartley said.

“Borrowing from an illegal lender is never a good idea, and it is crucial that this illegal activity is reported.”

However, it appears that some borrowers are simply not aware of the risks posed by loan sharks. Perhaps most worryingly, a sixth of people who had borrowed said they knew they were using an illegal lender, but felt they had no choice after being refused credit.

For those who haven’t turned to loan sharks, a whopping 27 per cent had taken out a loan from a high-cost lender after being rejected by the mainstream.

In Creditspring’s research, Opinium surveyed 2,000 UK adults, weighted to be representative of the UK.