Credit Card Borrowing fades as payday loans rise

6 February 2012
Last updated at 11:31











Credit card borrowing fades as payday loans rise




















Neil Blake, Ernst & Young Item Club: "People are finding there is no alternative to payday loans"






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Demand for credit cards is "feeling the strain" as UK borrowers turn to other forms of finance, a report has said.

Households paid off some unsecured debts in 2011, but were
still left with an average debt of about £7,900, PricewaterhouseCoopers
(PwC) said.

But credit cards were facing a "mid-life crisis" as people used debit cards, digital payments and payday loans instead.

A separate report described the payday loan expansion as "phenomenal".

However, there are no official figures that can chart the reported rise in payday loan use.

Youngsters' choice
The number of credit cards in circulation and total credit card borrowing both fell in 2011, the PwC report said.

It suggested that UK consumers were turning to other forms of
payment, even though the average credit card balance stood at about
£1,000.

Debit card use had increased by 10% last year, while many
people - especially the younger generations - were happy to use digital
payments, such as using their mobile phone.

"The challenge for banks is how to sustain market presence in
the face of competition from ambitious giants and other new entrants,"
the report said.

This could include a return to annual fees for credit cards, the PwC suggested.

Credit squeeze
The amount of debt being written off by credit card companies fell from its 2010 peak, according to the report.


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Households that fall outside of the
credit terms of traditional lenders are increasingly looking toward
other credit providers, regardless of the cost”

Neil Blake
Ernst & Young Item Club

• Q&A: Payday loans
  

However, the tighter lending
criteria introduced by these providers could have pushed some people to
other forms of borrowing, such as people who were refused a credit card
getting payday loans instead.

PwC suggested that, given a choice, some consumers now saw these high-cost, short-term loans as a better option.

"Mainstream lenders should be alert to the possibility that
what may have begun as a relationship of necessity, may endure as
consumers are pleasantly surprised at the convenient and innovative
service they receive from these smaller, more agile providers," the
report said.

This was backed up by a forecast by the Ernst & Young
Item Club, which predicted that this shift to payday lending would
continue - especially to poorer borrowers. It described the rise in
payday loans as "phenomenal".

"Households that fall outside of the credit terms of
traditional lenders are increasingly looking toward other credit
providers, regardless of the cost," said Neil Blake, the club's senior
economic adviser.

"With banks expected to further tighten lending conditions,
we expect the shift towards alternative lenders to continue unabated."

THIS COULD POTENTIALLY HIT TRADITIONAL LENDERS PROFITS.

Badboy wrote:THIS COULD POTENTIALLY HIT TRADITIONAL LENDERS PROFITS.

Yes it will Badboy, my Bank has issued a £12 monthly Fee for handling my account because I never let my Credit card mount up so they are not making a
profit off me . I have to pay it because it is handy .