Top Five reasons for taking out a Payday Loan

Earlier this month, Payday Pixie released an article on the most common reasons as to why UK consumers turn to payday loans. The reasons varied massively especially between different age groups, for example 18 – 25 year old’s were turning to payday loans due to overspending on their monthly income, whereas older age groups 35’s and above were turning to payday loans due to emergency and unexpected bills such as car and home repairs.

Our research also found that 45% of UK consumers who actively use payday loans as an alternative method of finance are also homeowners. These finding will come as no surprise to many UK homeowners as the cost of living and monthly utility bills continue to rise year on year leaving many people with no option but to turn to borrowing additional finances.

With our recent report documenting the difference between different age groups and their borrowing habits, we decided to further document what the most common five ten reasons were for people needing to turn to additional finances throughout the UK.

Top Five reasons for a Payday Loan

Monthly Utility Bills

The number one and most common reason for UK consumers turning to payday loans and short term finance were sudden increases in their monthly utility bills. Utility bills will vary from month to month depending on how much gas, electricity and water that you use. These types of bills are massively influenced by month and seasons with electricity and gas bills seeing a sharp increase in the winter season due to the darker and colder weather.

Many people who used payday loans to meet monthly utility bills also stated that they were sometimes surprised with how much their monthly bills can increase by and found it harder to keep track of the costs and repayments due to them changing month by month. Utility bills are generally the hardest costs to accommodate for, unlike a phone contract or mortgage payment these costs are consistently changing on a month to month basis and are extremely hard to know exactly how much will be charged at the end of the month.

Monthly Mortgage and Rent Bills

With the cost of living becoming ever so more increasingly expensive, short term loans and payday loans are seen as a fast alternative to cover a small portion of the costs towards mortgage and rent bills. London was the number 1 hotspot within the UK for people that took out a payday loan just to cover their monthly mortgage or rental payments due to its astoundingly high cost of living. The average price of renting a flat in the city centre is nearly double that of any other UK city with an average rental value calculating £1500 per month.

Although payday loans are never ideal to help cover the full cost of a monthly mortgage or rental payment, they can be a suitable alternative to help cover a portion of the monthly cost.

Weekly Grocery Shopping

There has been a sharp rise within the last 15 months of people using additional finances to complete their weekly grocery shop. Although credit cards are still the most popular choice, payday loans are fast increasing in popularity due to their small borrowing amounts and short repayment terms. Understandably this mainly effects UK families that need to feed their children as well as their selves on a weekly basis.

Emergency/Unexpected Bills 

Many of the finance experts here at Payday Pixie were expecting one of the main reasons for people to turn to additional finances to be related to unexpected bills such as car breakdowns, MOT’s, home improvement repairs (boilers, plumbing, electricity). Unexpected bills can take everyone by surprise and will always play a part in causing some form of financial difficulties for many individuals throughout the UK.

Some of the most common emergency bills include car repair bills and boiler repairs, both of which are essential to everyday life which is why it costs so much to get them repaired in such a short notice. Many people get caught out by emergency bills by failing to save a small part of their monthly salary as a financial cushion should there be a need to pay an unexpected/emergency bill. Take a look at our recent blog post on how you can soften the blow and cope with unexpected monthly bills

One off Purchases

Surprisingly people are also turning to short term finance methods such as payday loans to fund one off purchases which include products and services. The value of the purchases value from £50 up to £2000.

There are a massive range of purchases that fall into this category from children’s school uniforms, to cosmetic procedures to even holidays. Although one off purchases traditionally would have been funded through a personal loan granted from a large UK lender or Bank, people are now turning to the short term lenders who are able to borrow in smaller amounts for a shorter period of time.

Summary

There are many different reasons as to why people need to turn to additional finances from overspending to covering the cost of those surprising unexpected bills. Many people will at some point in their life experience some form of financial difficulty and will require assistance from financial experts in order to guide them through what can potentially be a very stressful time.

Here at Payday Pixie we understand the need for a fast reliable financial service in which we can put people at ease when it comes to applying for a payday loan. Whatever financial stress you are experiencing you can contact our team of finance experts for further advice.

Alternatively we provide a safe and secure online platform to enable you to apply for a payday loan online stress free.

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How to borrow with poor credit

Your credit file Information 

When looking for a loan you may want to know that lenders take a fair few number of factors into consideration when reviewing application forms but the one main thing they look at is your credit file counting this as the most important information to go by, there are credit reference agencies to collect this information the main three being CallCredit, Experian and Equifax all carrying their own version of your credit file all containing the relevant information about your financial history including credit cards, mortgages and any other types of loans.

When you apply for a loan the lender reviewing your application form will use details on your credit report along side other financial information to work out a credit score but there isn’t only one credit score as many people can think and this isn’t the complete truth, different lenders have different ways of calculating a credit score which answers why you may get turned down by one lender but then have success in finding your chosen loan by the next.

What damages your credit score

Your credit score is based on how reliable you are with your credit, if you have always managed to keep on top of your debts in the past then you shouldn’t come across any problems or snags when looking for credit in the future but if you wasn’t able to make your repayments on time and missed a payment on a credit card or made a late payment on a loan these will show up on your credit file and could result in a negative effect to your score.

If you have ever encountered more serious financial problems for example a county court judgement or bankruptcy these will also leave you with a poor credit score.

High interest rates

There are many mainstream lenders that will refuse borrowers with a low credit score but you will be able to find a number of specialist lenders that are willing to offer credit to borrowers with a poor credit score the downfall to this option is the price may be high, banks and building societies advertise the low rates which are very tempting but they only really apply to around 52% of applicants and the remaining 48% take on higher interest rates due to different strengths in the credit score.

First time borrowing

Most lenders are reluctant to offering out funds to applicants who have not borrowed money before due to first time borrowers not having any record of good or bad borrowing which leaves lenders in the dark of assessing how reliable they are with the repayments, this may make it more difficult for first time borrowers.

Debt advice 

If you are someone with poor credit and trying to get yourself a personal loan be sure to have a good look around and compare interest rates and get the best deal, only take out a loan if you know you can manage your debts and keep up to date on the repayments this will not only stop you from damaging your credit score even more it will help you build your score up over time.

Not sure you will be able to make your payments, keep up with your payments after already taking out a loan and likely to run into financial trouble then you can take on help from a free counselling service for example Citizens Advise.

Have a look at our helpful guide to improve your credit rating


The most common reasons people turn to payday loans

Many people turn to payday loans for a number of reasons, from the occasional overspending to unexpected bills throughout the months. Everyone experiences financial troubles throughout their working lives and turn to methods of alternative finance to help them cover the cost of their monthly bills.

In a recent study conducted by PaydayPixie.co.uk we analysed the reasons as to why more and more people are turning to different forms of finance such as payday loans. We looked at what age groups are most likely to apply for a payday loan and for the reasoning behind their decision to turn to alternative forms of finance.

Our study found that there was a huge mixture of age groups that actively use payday loans for a number of reasons. Some reasons were found to be more popular with specific age groups than others.

Our Findings

We found that the most common and likely age group to apply for additional finances were the 25-30 age group with many stating overspending as their main reason for needing additional funds to help them through to their next payday. Other popular reasons included rent payments with many people in the 25-30 age category current renting a property as opposed to having a mortgage.

With house prices at an all-time high, less and less people are managing to successfully get onto the property ladder, no more so than the 25-30 age category with many left with no option but to rent a property. This further explains why many 25-30 year olds cited rental bills as one of the main factors for exploring other borrowing options.

In contrast to the 25-30 age range, people aged between 35-50 years old had very different reasons for turning to payday loans such as home improvement bills. The reasons cited by many in this age range further emphasises the homeowner/tenant divide within the UK with many in the 35-50 age category owning their own home.

The similarities between different age ranges and their borrowing trends seem to be related to housing and accommodation however both are very different in the fact that one group consists mainly of homeowners whilst the other are paying tenants renting a property from a landlord.

The most common correlation that was found throughout the study was the location of many of the people that were applying for a payday loan with a massive 65% of applicants based in and around the London area. This statistic further reflects the massive living costs that are associated with living in the capital city. Although London salaries are the highest in the country the living costs that come with living in our capital city are among some of the highest in the world.

House prices and rental costs in London can sometimes double compared to what residents are paying for a similar property in some of Britains other main cities such as Manchester and Birmingham. However there is no sign of London living costs slowing down any time soon, in fact house prices and rental costs are still on the rise in London. It is more likely that that living costs in Britains other cities will increase to compete with the prices seen in London instead of decreasing to match the prices seen in many other UK major cities.

The results of our study show that there is a clear correlation of people in certain age ranges citing specific reasons to applying for additional finances such as payday loans. Reasons that are popular with people of specific ages may not be one of the main factors for borrowing for people in a different age group.

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A guide to Debt Management Plans

If you are consistently using payday loans or other forms of alternative finance to help you pay off existing debt, credit card bills or loan repayments on a monthly basis then a debt management plan may be a suitable option for you.

Debt management plans (DMP’s) help people who have built up a considerable amount of debt throughout the years to consolidate and reduce their monthly and overall debt repayments. If you are struggling to make repayments or occasionally have to turn to alternative methods of finance to pay off your debt then a debt management plan is likely to help with your current financial situation.

There are a number of companies throughout the UK that offer debt management plans. DMP’s works by reducing the overall level of an individual’s debt and in some cases have been known to reduce the overall debt by 60% – 80%.

How does a debt management plan work?

Before finding out if you are eligible for a DMP there are a number of checks that an individual finance advisor will need to carry out before you are signed up to a DMP.

  • Your total monthly income
  • How much of your income is being spent on making repayments
  • The total amount of debt that is owed to creditors
  • Who your creditors are

Your individual finance advisor will then inform your creditors of the debt management plan and will start to propose a new payment structure which would usually involve your creditors agreeing to reduce a large percentage of your debt. It is within the best interest of the creditors to reduce the level of debt or risk not receiving any form of repayments.

Once the new proposal has been agreed your advisor will set up a monthly payment plan with you. Instead of having to personally make a number of transactions to pay different creditors; just one direct debit will be taken from your account by your debt management company.

Your debt management company will then work on distributing the agreed monthly repayments to all of your creditors and will deal directly with them on your behalf. Not only do you no longer have to deal with any of your creditors again, but the monthly repayments you would have been originally making will have significantly reduced.

Debt management plans on average take between 5 years to complete, by the end of the 5 years you will be completely debt free providing you do not get yourself into further debt outside of your debt management plan.

In 2015 more than 3 million people expressed an interest in signing up to a debt management plan. Within the last 3 years, the need for DMP’s has increased by 45% and is expected to increase by a further 15% by 2017. The cost of living is increasing year on year, and vastly outweighs the minimum wage which is why so many people are turning to alternative methods of finance.

One of the main reasons for consumers reaching out to debt management companies was due to their salaries not increasing in conjunction to the elevated living costs. What may have been an affordable debt has soon turned into an almost impossible cost to repay.

For further advice on where you can turn for alternative finance or debt management advice, don’t hesitate to contact the payday pixie team.

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Increase in new homeowners turning to payday loans

payday loans homeowners

New homeowners are turning to payday loans in a bid to helping them meet monthly mortgage payments. For many new homeowners the sudden responsibility of a mortgage can be a big change and commitment compared to those who choose to rent from a Landlord. A mortgage is seen as the ultimate financial goal by many UK citizens, the opportunity to own your own home and get onto the property ladder is something that many people aspire too.

Research has shown that payday loans are most common with new homeowners within the firs 6 months of moving into a new property. There are many reasons that are seen as a contributing factor for this such as:

Purchasing new furniture, fixtures and fittings – Any new homeowner will always want to add their own finishing touches onto a property, whether this means buying new furniture, curtains, carpets or new crockery, they all come with a price. Although the finishing touches may be spent on small items, they all add up financially and can certainly present a challenge in trying to pay for them all alongside your newly inherited mortgage payments.

Underestimating the total cost of a mortgage and utility bills – One of the main reasons for new homeowners turning to alternative finance solutions is because they simply underestimate the total costs involved with owning a house. Along with mortgage payments comes utility bills and council tax, which can also present some very high additional costs. The problem with utility bills is that they will vary from month to month which is why they can be a problem with new homeowners who are not familiar with this type of variable costs.

For the majority of first time buyers the total cost of owning a home takes some time to get used to why is why many turn to alternative finance solutions such as payday loans. It takes on average 6-8 months to fall into the homeowner routine and familiarize yourself with the new variable costs that hit from month to month.

Homeowners also tend to get approved for a payday loan quicker than any other applicants due to the fact that their credit history will already be quite strong as they will have a mortgage in their name. There are many government funded borrowing schemes that are designed to enable first time buyers to get onto the property ladder such as the very successful help to buy scheme that was introduced in early 2014.

If you are a new homeowner that needs additional finances don’t hesitate to call the Payday Pixie team for advice on what your options are.

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How to cope with unexpected monthly costs

Sometimes no matter how careful you are with your money there just seems to be too many days left until your next pay check. We’ve all had those months where your outgoings just seem to be endless, no matter how much you try and save; you just continue to find yourself paying bill after bill after bill.

There’s no getting away from unexpected bills, even if you have a clear plan of your monthly outgoings you must always allow a little bit of leeway for those sudden and unexpected costs that everyone dreads.

Unexpected costs are a very common issue, in 2015 over 3 million people had taken out a payday loan with over one third claiming unexpected costs such as a car repair bill, higher than normal utility bills and home improvements such as a boiler repair as the main reason for turning to a payday loan.

How can payday loans help with unexpected costs?

Payday loans are a fast and ideal solution to cover unexpected bills. Many additional outgoings that most people face are the result of overspending and not having enough money left until your next pay check, car and home repair bills such as MOT or maintenance costs.

Due to the flexibility with pixie payday loans and being able to borrow small amounts of money for such a short period of time, many people prefer this option as opposed to borrowing larger amounts for a longer period of time resulting in higher interest rate costs.

Unlike many other UK providers such as high street banks and lenders providing larger personal loans, payday loans have a very quick turnaround from application to receiving your funds taking on average just 15 minutes compared to 10 working days when borrowing larger amounts from many of the UK’s leading high street banks.

How can I avoid facing unexpected costs?

The truth is there will always be unexpected costs throughout your life that seem to come at the worst possible time. There is not much that can be done to prevent these types of costs appearing out of nowhere; however you can soften the blow and financial burden that they seem to impose on so many people.

Many people will calculate their exact outgoings every month, outgoings that they know they will definitely have to pay such as rent, mortgage, insurances etc. However the majority of people when calculating their outgoings will not take into consideration the possibility of unexpected costs occurring which is why when they do randomly come out of nowhere they are unable to financially cover the costs.

By saving that little bit extra every month, you will be in a better financial state to cope with the financial pressures that come with unexpected and emergency bills. By leaving that slight financial cushion in your bank account every month may enable you to cover a larger portion of a surprise cost rather than looking for alternative ways of borrowing in order to pay it off.