Our new infographic is here, and reveals some major home truths about the country’s spending! Do you ever feel pressure to overspend on big calendar events such as Mother’s/Father’s Day, Easter or Christmas? You might not be alone, with over half of Brits going over their intended budget! #OccasionalSpending
People use payday loans as a means to tide them over to their next pay cheque in a wide range of situations. For example, they may rely on this type of credit if they are short of money to cover expenses such as rent or mortgage payments and food costs, or if they encounter unexpected expenses like car or property repair bills.
More people may be turning to these short-term loans as the pressures on consumers’ finances continue to rise.
According to figures from the Office for National Statistics, when adjusted for inflation regular pay dropped by 0.5 per cent year-on-year in the three months to May. This came after a fall of 0.6 per cent in real pay in the three months to April and a 0.4 per cent year-on-year decrease over the three months before that.
Rising levels of inflation and stagnating wages mean many households now have less, if any, money to spare each month. Inflation hit 2.9 per cent in June, which was up from 2.7 per cent the previous month and was considerably above the Bank of England’s target of two per cent.
With the prices of goods and services increasing relative to pay, more people may struggle to balance their budgets and this could result in an increase in applications for payday loans in the UK.
Public sector workers under strain
Workers in the public sector may be among those who are especially likely to need short term loans. There has been a lot of attention on public sector pay restrictions over recent weeks, with the government under pressure to lift pay limits first imposed in 2011-12. Since a two-year pay freeze starting in 2011-12, rises have been limited to one per cent.
According to an analysis conducted by the Trades Union Congress, firefighters, nurses and border guards may all see their real wages decline by more than £2,500 over the next three years if the pay restrictions remain in place. Meanwhile, the National Union of Teachers suggested that teacher pay has dropped by around 15 per cent in real terms since 2010.
Decreases in inflation adjusted earnings like this could make people more likely to approach payday lenders seeking short-term loans.
Could a payday loan be the right option for you?
Regardless of the sector you work in, if you’re short of money, you might be considering taking out a payday loan. Whether you need cash to cover a particular expense such as a bill or you simply need some extra money to help you meet your general living costs, these loans could offer a solution. One of the benefits of these products is the fact that they can be easy and quick to access, even if you have a bad credit history. If your application is approved, you may be able to receive the money the same day.
However, it’s important to realise that these financial agreements are only suitable if you want to borrow small sums of money. If you’re applying for a loan through Swift Money, you can request up to £1,000. If you require a larger sum than this, you will have to consider other options, for example taking out a personal loan. Also, bear in mind that payday loans tend to have higher interest rates than alternatives such as personal loans and the repayment terms are shorter.
Before you sign up to one of these products, make sure you have shopped around to find the best payday loans on the market. It’s also important that you’re confident you can meet the repayment terms set by the lender.
The CSA is set to be replaced by CMS (Child Maintenance Service) in a process expected to take until 2018. A number of changes have taken place. For instance, you can no longer claim child maintenance via CSA. All child maintenance claims must be made through the CMS instead going forward. Cases involving child maintenance i.e. if you receive child maintenance via the CSA currently, your case will be terminated before 2018 when the CMS replaces the CSA fully. In such an instance, you must apply via the CMS to continue receiving payments.
You are supposed to receive two letters from the CSA notifying you that your case is being closed. The first letter is sent 6 months before a CSA case is closed. The second letter is sent a month before the case closes. You should act immediately i.e. when you get your first letter.
If you haven’t received a letter yet, don’t worry. The CSA is still in the process of closing cases, a process expected to last until 2018.
There may be a delay of 6 or more weeks on child maintenance payments during the transition. The delay is expected even in cases where you act fast and/or ask the CMS to expedite your case. The reason for this delay is simple i.e. the CMS recalculates and begins administering child maintenance after closing CSA cases which can take up to 6 weeks.
The CMS difference
You will be required to pay £20 as an application fee to utilise the service. There are however exceptions to this. For instance, you don’t need to pay this fee if you are under 18 years or if you have been a victim of domestic violence.
The charge is applicable for catering for expenses related to CMS checks on the income of your child/children’s other parent with the HMRC. You also get maintenance calculations, a payment schedule as well as information on arranging payments. The fee also gives you online access to your child maintenance account, an annual review of the income of your child’s/children’s other parent and lastly a collections service if you aren’t receiving payments (an extra charge may be applicable for this).
Collection charges are applicable if the CMS steps in to collect money on your behalf. The paying parent must pay 20% above the child maintenance amount. The receiving parent also gets 96% of the child maintenance amount. If the paying parent sends money directly to the other parent, no collection charge is incurred.
If you have arrears with the CSA, they will still stand and be enforceable with the CMS. The same applies in cases of family-based arrangements or if you still owe the arrears even if your child is an adult now. It’s also worth noting that the CMS is expected to be much better than the CSA at collecting arrears.
Universal Credit (UC) is a new benefit aimed at supporting UK citizens who are either out of work or receiving a low income. UC replaces; Housing Benefit, Income support, Child Tax Credit, Working Tax Credit, income-based Jobseekers allowance and income related employment & support allowance. You can get Universal Credit if you live in; England, Wales or Scotland. The benefit was introduced in Northern Ireland just recently (in September 2017).
Key UC facts
As of now, most claims are arising from newly-unemployed single individuals. Couples and families also make claims. If you usually receive assistance with your rent, you will continue getting the same assistance. If you have a spouse and you are all entitled to Universal Credit, you will receive one joint payment monthly paid directly into one bank account.
It’s also worth noting UC is paid every month in arrears. For this reason, it can take 6 weeks for you to receive your first payment after you launch your claim. Also, there are no limits on working hours when you are claiming UC. However, the amount you receive reduces as you earn more. Lastly, UC benefit claims can be made online.
When will you be paid?
There is a waiting period after making a new UC claim. Typically, you won’t be paid for the first week (7 days). This should stop you from claiming. You should apply immediately because it takes 6 weeks for you to get your first payment. The 7th day after making a claim becomes your assessment date i.e. the date you will be receiving your UC payment every month.
How much is UC?
UC is comprised of a standard allowance as well as an element for; housing, being a carer, childcare costs as well as elements for disabled children and an ill/disabled adults. A person’s maximum UC award is composed of one standard household allowance plus elements covering your family circumstances. Individuals get the most if their household has no other income and savings or capital is £6,000 or less.
How working affects universal credit
UC doesn’t put restrictions on working hours as is the case with benefits like Income Support and Working Tax Credits. Individuals who are in paid work can be entitled to receive a work allowance.
Work allowance is simply the money you are allowed to make before your UC payment is affected. You are entitled to receive a work allowance if you are responsible for a dependent child/children or you can’t work normally due to disability or illness. If you qualify for a work allowance, your earnings are restricted by the threshold present in relation to your circumstance. Your UC payment then goes down 63p for every extra pound you earn above the threshold.
How other income affects Universal Credit
Income that you don’t get from working can be deducted. This income is known as unearned income. Examples of such income taken off UC payments include; pension income, statutory sick pay, statutory maternity/paternity/adoption pay as well as some benefits which are not replaced by UC. Typically, a pound is deducted for every pound of unearned income. Examples of unearned income that isn’t taken from a person’s UC payment include; maintenance payments, child benefit, personal independence payment, disability living allowance as well as income from lodgers and boarders.
Effects of savings on Universal Credit
Having capital (from investments or shares) and savings can affect the amount of UC you get. Household savings or capital amounting to £6,000 or less is ignored when calculating UC payment. If you/your spouse have savings falling between £6,000 and £16,000, £6,000 is deducted, and then the remainder is considered as an investment which provides a return of £4.35 for every £250. Households with savings or capital exceeding £16,000 aren’t entitled to UC.
The effect on savings when moving from Tax credits to UC
Under Tax credit rules, savings or capital over £6,000 was ignored although some income i.e. from savings was considered. Moving to UC when you have capital or savings exceeding £6,000 won’t make you worse off since you will still be entitled to receive transitional protection (a top-up payment) meant to make sure you are not worse off.
Applying for Universal Credit
You can claim UC online by visiting the official Universal Credit Website:
Here is a link to all the information you need to start your claim:
Couples can make a joint claim. In such a case, you or your partner should complete the claim form although you/your partner’s details have to be provided.
From more information, call the Universal Credit helpline: 0345 600 0723
Welfare reform started in the UK back in 2013. Numerous benefits have been abolished and replaced. Below is all you need to know on the new benefits system.
Universal Credit has replaced most existing benefits
Universal Credit (UC) has replaced most mean-tested benefits such as Income-based Jobseekers Allowance, Income-related Employment & Support Allowance (ESA), Housing Benefit, Income Support, Child Tax Credit and Working Tax Credit. UC will be paid to working people in place of the above means-tested benefits.
The Universal Credit pilot scheme started in Tameside, North of England in April 2013. The benefit was introduced to other parts of the UK for new claims in October 2013. All people who are already getting benefits must have been transferred to UC today.
Personal Independence Payment (PIP) has replaced Disability Living Allowance (DLA)
PIP has replaced DLA for individuals aged between 16 and 64 years. The benefit is for individuals with disability or long-term health conditions. Individuals who were getting DLA must make new claims to be transferred to PIP. PIP pilot schemes began in April 2013 in England before moving to other areas in the UK in June 2013. In October 2015, the DWP (Department for Work & Pensions) started contacting everyone who was still getting DLA to invite them to claim PIP. The benefit is fully active now.
Local schemes have replaced Council Tax Benefit
Before April 2013, UK citizens got Council Tax Benefits calculated using a standard national formula which was the same everywhere. Local authorities now run Council Tax Reduction Schemes fully. Although the elderly have been protected against cuts to the benefit, individuals who are under the recommended age for receiving Pension Credit are unlikely to receive the full rebate. Such individuals are required to pay some money towards their Council Tax bill.
Benefit cap changes
A limit has been placed on the total a person is supposed to receive from certain benefits if you are of working age. This cap affects individuals who have been getting housing benefit in the past. From April 2013, such individuals have been getting less money going towards offsetting their rent bill.
Benefit appeal rights changes
Benefit appeal rights have also changed. Going forward you are required to ask for a decision to be reviewed before appealing to a tribunal. This change affects Personal Independence Payment and Universal Credit.
New conditions for job searching
Since the introduction of Universal Credit, individuals who are unemployed or employed with a low income must sign new claimant commitments. The new claimant commitment highlights work-related requirements that must be met before a person gets their benefit.
If you happen to be working, you must get a job with better pay. Alternatively, you can work for more hours to boost your income. The new conditions apply to spouses too. The claimant commitment is also applicable to you if you receive a Jobseeker’s Allowance, income support, and employment & support allowance prior to transferring your claim to UC.
Social fund changes
Sections of the social fund have been abolished. Social fund changes began in April 2013. Individuals getting certain benefits may be eligible for a loan or payment from the social fund. This benefit can be used to fund one-off or unexpected expenses. Sections of the social fund have been abolished including Crisis Loans and Community Care Grants. Local authorities also have money now to use on replacement schemes or other things like local food banks and schemes offering subsidised goods.
Child benefit has seized for high earners
UK households with one parent earning £50,000 or more a year will receive less money as Child Benefit. This change has been in effect since 7th January 2013.
Has income from benefits lowered?
The welfare reform in the UK hasn’t lowered all income from benefits. Many people have received special protection. For instance, individuals are now protected against drops in income with Universal Credit. This protection is known as transitional protection. It is however reserved for individuals who weren’t getting Housing Benefit and Disability Living Allowance. For this reason, individuals getting such benefits have seen their income reduce as they transition to the new system.
Child care costs can take up a huge percentage of a family’s income. Luckily in the UK, families can get help from their employer as well as the government in many forms from free childcare to tax credits. If your child care costs are high, here’s how you can get help.
1. Working Tax Credit (the childcare element)
You can cover approximately 70% of your total childcare costs if you qualify for a working tax credit. You can be eligible for a working tax credit if you usually pay for registered/approved childcare and work for 16 hours+ a week (at least 24 hours a week for couples). You also need to meet specific income threshold. If your total household income annually is £6,420 or less, you are entitled to the maximum working tax credit you qualify for. The more you earn, the less you get. Individuals whose household earnings surpass the annual household income limit for qualification don’t qualify for a working tax credit.
If you have one child and pay up to £175 per week in childcare costs, you can get up to £122.5 per week. If you have two children and pay up to £300 per week in childcare costs, you can get up to £210 per week. You can’t be able to claim if you pay more than the above for childcare. It’s also worth noting that you are not assured of getting the whole amount if you qualify to make a claim. The tax credit you receive depends on factors such as income, childcare costs and the number of hours you work. Furthermore, you must receive childcare from a government approved/registered childcare provider to be able to claim.
2. Free early years childcare and education
You can also get assistance with childcare costs in the UK in the form of free early years childcare and education. 3 and 4-year olds are entitled to free early education/childcare. The amount you get depends on factors such as location.
In England for instance, 3 and 4-year olds are eligible for free early years childcare/education if parents/guardians claim certain benefits of if you have a disability. This benefit is usually 15 hours per week for 38 weeks. The free hours can be used at Ofsted-registered childcare providers like; playgroups and pre-schools, registered childminders, nurseries and nursery classes as well as Sure Start Children Centres. Each parent must earn at least 16 hours per week ( at minimum wage). The earnings must also be £100,000 or less per year.
In Scotland, 3 and 4-year olds are eligible for 600 hours of free education/childcare per year. Families with 2-year olds also qualify for some benefits in Scotland. In Wales, 3 and 4-year olds are eligible for 10 hours of free education per week for 38 weeks. Northern Ireland offers 12.5+ hours of free pre-school education weekly for 38 weeks a year before children begin Primary One.
3. Direct payment
This type of help comes from employers in the UK. As the name suggests, payments are made by employers directly to approved or registered childcare providers. Employers pay depending on your tax profile. Basic rate taxpayers (individuals who pay 20%) get £243 per month. Higher rate taxpayers (40%) get £124 per month while additional rate taxpayers (45%) get £110 per month.
If your employer chooses to pay more than the above to your childcare provider, you will be required to pay tax on the amount unless you make less than £8,500 per year.
4. Childcare vouchers
You can also receive childcare vouchers from your employer in the UK as assistance for child care costs. Beneficiaries can choose childcare providers provided they are approved or registered with Ofsted. Childcare vouchers are non-refundable and usually offered in exchange for a portion of your income. For this reason, it recommendable to avoid collecting excessive vouchers.
To qualify for childcare vouchers in the UK, your child/children must be less than 15 years old. The value of childcare vouchers depends on whether you pay basic, higher or additional rate income tax. Basic rate taxpayers can get childcare vouchers worth £243 per month. Higher rate taxpayers can get childcare vouchers worth £124 per month while additional rate tax payers can get childcare vouchers worth £110 per month.
You must pay tax on extra vouchers given to you by your employer unless your yearly income is less than £8,500. Childcare vouchers are great because they are usually worth more. If you are not in a position to claim tax credits, you are also better off using childcare vouchers.
5. Workplace nurseries
Your employer can also help you lower your child care costs via workplace nurseries. Some employers in the UK have their own workplace nurseries which can be free or subsidised.
6. Tax-Free Childcare Scheme
A Tax-Free childcare scheme has been in force in the UK since April 2017. Under this scheme, you get 20% off from your childcare bill per year, paid for by the UK government. The scheme is open for children who are less than 12 years old or less than 17 years old for disabled children. The government contributes a maximum of £2,000 per child, per year or £4,000 for children with disabilities.
You don’t have to incur huge childcare costs in the UK. The above options are available to you. You have all the information you need to start paying lower child care costs today. However, feel free to do more in-depth research on eligibility criteria, amount, etc. before choosing any of the above options.
A recent TUC (Trades Union Congress) report shows that the average UK family will be £15k in debt by the year 2020. The shocking report revealed that UK households are heavily dependent on credit cards and payday loans. Unsecured debt per household expected to hit £13,900 by the end of 2017. The TUC reports that Britain is in a living standards crisis given that millions of families in the UK use credit cards and payday loans to pay for essentials. According to the report, UK households are ”running on empty”.
Back in 2016, unsecured debt per UK family stood at £13,200 which is the highest ever unsecured debt figure since Britain and the world at large was hit by the financial crisis. The figure is only a small margin below the £13,300 peak in 2007. The report highlights unsecured debt as debt from; payday loans, credit cards, store cards, car loans, bank loans and student loans (mortgage payments are excluded). The TUC report blames the low investment and low wages for the debt crisis and stresses that these difficulties have to be solved by the next government if we expect the average debt per household to reduce.
UK wages are still below the pre-financial crisis level by approximately £20 a month. This simply shows that it has taken more than a decade for UK wages to recover fully. What’s more shocking is; official figures indicate that real wages have begun falling again. The TUC report believes that the increasing level of household debt in the UK should be the most important concern for political parties and the next government given the UK economy heavily relies on household spending to sustain growth.
Consumer spending has skyrocketed in the past eight years. One notable segment is the amount of money Britons borrow to buy new cars every year. The figure currently stands £30 billion. This is against the official government debt figure of £1.7 trillion whose interest payments demand £10 million monthly as of April 2017. The savings ratio has also reached a record low. The latest figures show that the ratio of income to savings in the UK stands at just 3.3%.
The UK household debt crisis looks worse from a legal perspective given County Court judgments relating to consumer debt have risen to 35 percent in England and Wales. The debt crisis has also attracted the attention of the Bank of England which has currently launched an investigation on unsecured lending to UK households.
According to the TUC General Secretary, Frances O’Grady, the increasing household debt is pushing Britain’s economy into a danger zone. O’Grady attributes the problems to the fact that UK wages haven’t recovered fully since the financial crisis forcing families to rely on payday loans and credit cards to cater for household bills. She stresses that the next government needs to act urgently to increase the minimum wage as well as end pay restriction affecting public servants like firefighters, nurses and midwives otherwise economic growth won’t be sustainable.
According to O’Grady, the next government must do more for many parts of Britain where good jobs are minimal or non-existent. She argues that communities lacking well-paying jobs have an opportunity to thrive in the future if the government invests adequately in training, broadband, transport links and decent housing.
Just recently, the Competition Market Authority (CMA) conducted a payday lending market investigation (Click here to download the official report). Below is a summary of the findings as well as recommendations.
According to the CMA investigation, the average size of a payday loan in the UK stands at £260 and almost all loans are £1000 or less in value. The loans vary depending on repayment terms with most loans repayable in a month or less with a single instalment.
The average term of most payday loans in the UK is just over 21 days or three weeks.
In terms of growth, the UK payday loan industry grew the fastest from 2008-2012. During this period, payday loan lenders we issuing approximately 10.2 million loans per year valued at approximately £2.8 billion. Growth has been reducing since then. In 2013 for instance, payday loan industry revenues dropped by 5%. The market also contracted in 2014 with the number of new loans falling by approximately 27% between January and September 2014.
The year 2014 saw four out eleven major payday loan lenders, as well as many small lenders, stop offering payday loans. The market hasn’t recovered since following the introduction of Price Cap Regulation in January 2015 which saw many payday lenders unable to operate profitably under the new regulation.
In-depth CMA findings
The CMA payday lending market investigation reveals a lot of information on various aspects of the industry. Here’s what you need to know;
1. Payday loan usage (number of loans taken out per customer)
According to the CMA report, most payday loan customers take out many payday loans over time with the average lender taking out approximately six loans every year. In regards to borrowers’ lender preferences, most borrowers use two or more lenders.
2. Online vs high street borrowing
In regards to loan platforms, most payday loan customers today prefer taking out loans online i.e. 83% vs. 29% who take out loans on the high street. 12% of all payday loan users borrow using both channels today. On amount, borrowers borrow more online i.e. £290 compared to the high street £180.
3. Borrower loan application assessment
Most payday lenders today have developed computerised risk models that help them conduct thorough assessments on their client’s credit worthiness as well as their ability to repay the loan successfully. Borrower assessment has been and is still part of every lender’s loan application process. The sophistication of risk models, however, varies from one lender to another. In regards to loan application success, the number of loan applications turned down was above 50% for most of the major lenders back in 2012. The figure continues to rise to date as lenders become more cautious in the wake of the new FCA regulations.
4. Payday loan customer profile
The CMA investigation shows that the typical online payday loan customer in the UK has an average income of £16,500 while high street borrowers have an average income of £13,400. In general, most people who have been using (and are still using payday loans) in the UK earn less than the average income in the UK which stands at £17,500.
In regards to gender and occupation, most payday loan customers in the UK are male working in full-time jobs. They also happen to be younger (than average) and living in larger households.
Most payday loan customers also happen to have experienced financial problems in the recent past. According to the CMA investigation, 38% of all payday loan customers have a bad credit score/rating while 10% have been visited by a debt collector or bailiff. In a nutshell, 52% of payday loan customers have faced some debt problems in the near past. The number of people who repay their payday loans in full has also decreased over time.
It’s also worth noting that most payday loans are taken on Fridays at the beginning or end of the month. Most borrowers also seem to be under some financial pressure when borrowing leaving little room for assessing other suitable credit alternatives that may be available to them. In fact, less than 50% of all payday loan borrowers shop around effectively before taking out payday loans. The typical payday loan customer is also recurring. Repeat customers account for a majority of payday loan business. Most borrowers also take loans from multiple lenders mainly because of problems with existing lenders i.e. late repayment, outstanding loan/s, etc.
5. Overall Payday loan usage
In regards to overall usage, most payday loan consumers (53%) use payday loans to cater for living expenses like utility bills and groceries. 10% take payday loans to pay for vehicle/car related expenses while 7% take payday loans to pay for general shopping such as clothes and household items. Only 52% of payday loan consumers use payday loans to pay for emergency-related expenses. This is despite the fact that payday loans are actually meant for catering for emergency expenses.
The CMA investigation reveals some difficulties in the industry which need to be addressed. Luckily, the CMA has given recommendations for dealing with these problems. Here’s what needs to be done;
1. There is a need to boost the effectiveness of price comparison websites
Most payday loan customers don’t have the luxury of choice when taking out loans as revealed in the investigation. Since borrowers take loans under duress, better price comparison websites can help borrowers shop for loans more effectively regardless of the time constraints or other problems present when taking out loans.
Better price comparison websites will also create a perfect environment for competition which will, in turn, result in better payday loans in every regard from the pricing/fees/charges to variety. Existing price comparison websites have numerous limitations that make it impossible for payday loan customers to make accurate comparisons.
2. More transparency on late fees/overall cost of borrowing
The CMA also feels there is a need for more transparency on fees charged in the industry by different lenders. The Authority believes the FCA needs to take more action to ensure all lenders have a legal obligation to disclose all their fees/charges on previous loans clearly to allow effective cost analysis.
3. Cooperation between the FCA, payday lenders, credit reference agencies and authorised price comparison websites
The CMA also feels the FCA must cooperate with all industry players more so lenders, credit reference agencies, and price comparison websites to improve payday loan borrower abilities to search the payday loan market extensively without compromising their credit history.
4. Real-time data sharing
There is also a need for real-time data sharing according to the CMA. Such efforts will benefit both borrowers and lenders. When lenders are able to get real-time access to their clients’ credit information, they will be in a position to do better borrower assessment and in turn, avail the best possible terms.
5. Increased transparency on the role of third parties like lead generators
The CMA also feels there should be more transparency on the role played by third parties like lead generators, affiliates, brokers, etc. since most of them pose as actual lenders when that’s not the case. The CMA stresses the need for the FCA to do more to make sure borrowers know upfront if they are applying for loans directly or indirectly. This move will reduce instances of erroneous expectations since most third parties tend to overpromise or provide inaccurate information.
The UK payday loan industry is far from its peak in 2012. The number of payday lenders has reduced following the introduction of the price cap regulation by the FCA. Lenders have also become stricter today. Unscrupulous lenders may have reduced, but borrowers remain vulnerable even after the new regulation since most of them borrow under pressure. There is hardly any time to compare payday loan lenders effectively, and price comparison websites are doing very little to help. This explains why the CMA is calling for better price comparison websites among other recommendations like transparency on fees, real-time data sharing and cooperation between the regulator, lenders, credit rating agencies and price comparison websites. Third parties also need to be more transparent when promoting lenders to ensure payday loan customers make the best possible decisions when taking out loans.
Financial education is also important to reduce over reliance on short-term credit to cater for living and emergency expenses. Financial education is bound to improve the customer profile of the typical payday loan user.