Payday loans and credit card applications – How struggling UK households are coping in the cost of living crisis

5 min read
September 08, 2022

With the continued cost of living crisis spiralling more and more UK households into debt, revolving around the epic increase in energy and food-related bills, there is a growing concern across the government, debt charities and welfare associations, that those struggling to make ends meet will turn to unregulated lending options once they have ‘maxed out’ their payday loans and credit card applications.

Also known as high-cost, short-term lending companies.

Reflecting on the current financial crisis engulfing the UK, the increase to factors such as inflation, now at 10.1% (September 2022), the energy price hike, is set to have a further two increases, one in October and another in January. This will cause low-income households, struggling to deal with the rising costs of fuel, food, services and energy, to increase their monthly debt to put food on the table and keep the lights on.

The Bank of England has reported that all forms of consumer borrowing have increased since pre-pandemic figures. So what are people looking for when seeking financial lending?

Credit Card applications – They’re on the up!

It was reported that back in June 2022, credit card borrowing had increased at its highest rate since 2005.

This is at a year-on-year increase of 13%, and, rather than this being a reflection of low-interest rates, normally encouraging us to spend, spend, spend, it has in fact been due to the average house in the UK not being able to afford to pay their monthly bills solely on the income they are currently generating each month.

With estimated rises of up to 80% on energy bills since April alone – will the UK see a further increase in credit card applications this winter to fill the gap between what people can afford and what they have to pay?

Will it be the return of the Payday loan?

Another highly searched term on the internet in recent months has been the availability of high-cost-short-term loans, also known as payday loans.

Since 2018, the available providers of high-cost, short-term lending have significantly reduced by over 50%. This is due to a regulatory clamp-down. This stemmed from the disgraceful short-term lending to many vulnerable customers at interest rates of up to 5000%!

Since this time there have been attempts by new, dissolved or reduced status companies, trying to reinvent themselves in a more positive light. Therefore, applying to the regulators to be allowed to provide loaning, similar to ‘payday loans’, suggesting themselves to be the only option for those on a low income or bad credit applicants that have been refused traditional loaning from a bank, building society, or even credit card applications.

At present no new applications have been granted to businesses. The currently available companies that are authorised to provide high-cost, short-term loans are less than 40 in the UK.

Is 0% really as good a deal as it seems?

0% interest has a compelling appeal to many who feel that spreading the cost, at no extra cost is a no-brainer to keep money affluent in the bank.

We see this often when a company advertises new customer credit card applications, offering a few months of no interest on
purchases or balance transfers.

But another short-term lending option that has become quite prevalent in recent years, is the ‘buy now pay later’ (BNPL) credit lender.

BNPL credit is generally used to purchase goods like clothes, household items and furniture.

Although many of these BNPL loans are at 0% interest for an agreed amount of time with regular fixed amount payments (weekly or monthly), borrowers are finding themselves unable to make the agreed repayments. And, therefore, the later amounts are unaffordable.

Where will people go if they fail credit card applications and there aren’t any payday loan options?

It is the worry that those unable to make ends meet in the current cost of living climate will inevitably ‘max out’ available credit cards, BNPL options and ‘payday’ loans (all of which will have spiralled them into further debt and in turn will keep them actively looking for other debt relieving options).

And then, will turn to unregulated loans and money lending schemes to ensure there is food on the table and the family are warm this winter.

This worry or fear is what is driving high-cost, short-term loan providers to push that they offer safer, more affordable loaning options. In fact, one company is offering to significantly reduce loan repayments as a reward if the monthly or weekly payments are received on time!

So many of these ‘short-term’ lenders have such bad reputations for misselling loans at ridiculously high-interest rates, will they really be the option for those struggling this winter?

What is our Government doing to help financially with the cost of living and energy hike crisis?

Our newly appointed Prime Minister, Liz Truss has vowed to price freeze the cost of energy for the coming months.

Although this plan has not been thoroughly explained yet, an announcement later this week will hopefully see the Government prevent higher invoicing to customers until February 2023, saving the average household up to £1000 yearly.

The Government has also provided a range of grants and loans, (some that are means tested) to help those most in need with their energy bills this winter – a full list can be found here.

What to do if you are experiencing financial problems through payday loans and credit card applications?

If unfortunately, you have fallen into the common trap of using debt-creating schemes such as payday loans or credit card applications to solve your debt problems, and you are unable to make ends meet, help is at hand!

The best thing you can do is speak to your energy provider. They are obliged to help their customers and it is in their interest to work with you to organise payments that are manageable.

If you are struggling to cope with debt and the consequences living in debt is causing, then speaking to a dedicated member of a debt charity, such as StepChange or National Debtline can provide solutions and support. These charities are in place to help you create a realistic and appropriate plan to ensure you are not spiralling into unmanageable debt and to provide advice and support for you and your family.

If you have been experiencing debt due to high energy bills or other outgoings, and you have tried to speak to your provider, but have not had an appropriate response or are unsatisfied with the outcome, speak to us here at Resolver. We are a free, independent issue resolution service.

We connect consumers with organisations to help find the best outcome every time. for all parties involved.
Our aim is to ensure consumers are listened to and appropriate responses and resolutions are made in response to issues being raised.
Visit us today at

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