Young people are twice as likely to turn to high-yield payday lenders than non-profit lenders, research by the government-backed Money and Pensions Service has found.
Friends and family were the top source of credit for the 25-34 age group, with 26 percent saying they would turn to “close contacts.”
Meanwhile, 19 percent said they would look to payday lenders or other expensive short-term loans if needed.
Only 5 percent of respondents said they would consider borrowing from nonprofit lenders like credit unions.
There are 7.7 million financially vulnerable adults in the UK and almost half are aged between 25 and 34
In addition, the nonprofit financial organization Fair4All estimates that 7.7 million people aged 18 to 34 live in financially vulnerable situations, accounting for nearly half of the estimated 17.6 million adults living in these conditions.
Fair4All Finance’s Lauren Peel told This Money: “We see people who already feel like they’ve been cutting every month and are still in their overdraft.
“But they have goals and are ambitious about where they want to live and what careers they want to have.
“A lot of them are tenants and that’s not always a stable market. Year after year, people worry about how much their rent increase will be.’
What are Credit Unions and Municipal Lenders?
Credit unions are financial unions that offer savings, loans, and a range of other services to their members. To become a member, credit unions typically require members to be part of a common bond, e.g. B. live in a certain area or work for a certain employer.
However, you do not always have to be a member of a union to use their services.
These organizations are often able to lend customers money on more favorable terms than other high-street lenders and have programs in place to assist vulnerable borrowers who may have difficulty accessing credit elsewhere.
Victoria Barry, 36, was trapped by payday lenders in her early 20s but was able to pay off her debt with the help of a credit union and is now a homeowner.
Victoria Barry fell into a vicious cycle of taking out expensive payday loans in her early twenties.
Speaking to This is Money, Victoria, now 36, from Manchester, says she initially borrowed just £20 from a payday lender after a friend recommended they finance an evening at the end of the month. Caught by the high interest charges, however, Victoria kept topping up her salary with loans at the end of the month.
It got to the point where she was paying back almost all of her salary to payday lenders every month and then had to take out another loan to live on. The breaking point, she says, came when her loans exceeded her income.
“The next payment was supposed to be money I didn’t have in my account,” she recalls. “I only had a salary of £10,500 and the month before I had borrowed £700. With the £150 interest I had no way of giving them the money.”
At the time, Victoria was working for Co-op Insurance and noticed advertisements for the Co-op Credit Union, which is open to members of a number of credit unions, on her workplace intranet.
“It was quite embarrassing, my family is not in debt nor in debt so I felt I had let people down and didn’t want to reach out to them. I saw it [credit union adverts] on the intranet and thought I’d give it a try.’
It was quite embarrassing, my family is neither in debt nor in debt so I felt I had let people down and didn’t want to reach out to them
She says she was concerned that union staff would blame her for mismanaging her money, but when she met an adviser in person, they were reassuring and helpful.
Not only did they provide her with an affordable repayment plan, but they also provided the financial healthcare tools, such as: B. Budgeting skills to manage their money.
“Nobody tells you how to budget and it’s really simple: this is where the money comes in and this is where you spend,” says Victoria, who now owns her own home in Mossley, Greater Manchester.
“It was like someone listening to you and not judging you, which was the most important thing to me at the time.
“Looking back on that time it was like there was no hope so I’m happy to share my story because when a person like me hears that there is someone who can help you who isn’t a loan shark or pays day borrowers, then it’s worth it.”
What else can you do if you need a loan?
The first thing Peel suggests is checking to see if you’re eligible for benefits you’re not already claiming.
There are online tools you can use to find out if you can access other sources of income. It is estimated that around £15 billion in benefits go unclaimed each year.
If there is a need for credit, don’t be ashamed, she says. Just make sure you do the research and contact financial providers who can help find a more cost-effective option for you.
The high-priced payday lenders are often at the top of search engine results, so take the time to look a little further to find out what’s available and affordable.
Victoria Barry reiterates the message that if you’re in financial trouble, don’t be ashamed and ask for help.
She suggests speaking to a credit union, but even if they can’t help you, they will be able to point you in the right direction for alternative sources of help.
“Ask for help is the first step,” she says.
According to a study by Bluestone Mortgages, one in six adults (16 percent) say they are too embarrassed to seek help when facing financial difficulties.
A major obstacle to counseling, however, is that nearly a third (31 percent) believe they are not entitled to help, while over a fifth (22 percent) say they don’t know where to start to look for help Looking for .
To raise awareness, credit unions and other community lenders are encouraging young people in their 20s and 30s to look at their borrowing options and what options are available to them through a range of local and national community lenders that may suit their financial circumstances.
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