Two million adults in the UK have turned to illegal lenders in the past twelve months. Faced with this alarming reality, more than half of families find themselves in a precarious financial situation.
The figures reveal a worrying dependence on unregulated credit, highlighting the urgent need for more accessible and transparent financial solutions. As a fintech expert, I am convinced that innovation can transform this landscape and offer viable alternatives to borrowers in difficulty.
Parents are particularly affected, with nine percent of them having to turn to illegal lenders, which is double the national average. This situation compromises the financial stability of many families, especially with the approach of increased spending periods like the Easter holidays.
Moreover, nearly four million parents anticipate needing to borrow to meet their needs in the next six months. This trend is exacerbated by the high costs of outings and vacations, making access to affordable credit more crucial than ever.
A third of parents have had to borrow from friends and family, significantly exceeding the national average. Meanwhile, three in ten families have turned to their bank, a proportion that has doubled compared to the overall UK adult population. This increased dependence underscores the importance of providing responsible and transparent credit solutions.
Unfortunately, more than a third of individuals do not know where to find short-term and affordable credit. This lack of reliable options pushes some to seek out costly or illegal alternatives, further aggravating their financial situation.
Fortunately, initiatives like Creditspring are emerging to offer innovative solutions. Through its Benefits Finder, the company helps users identify financial aids they may be entitled to, already accumulating £1.9 billion in additional support. Furthermore, Creditspring’s subscription model offers interest-free loans with clear terms, thereby avoiding spirals of debt.
Richard Lane from StepChange Debt Charity also emphasizes the importance of such alternatives: “It is essential to break the stigma surrounding debt advice and to offer safe and affordable alternatives to prevent families from turning to illegal lenders.”
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The rise of borrowers turning to illegal lenders: a growing concern
During this time of rising costs of living, an alarming situation is emerging in the UK: two million British adults are turning to illegal lenders to meet their immediate financial needs. This trend has been highlighted by a recent study published by Creditspring during Debt Awareness Week. According to this research, 15% of the UK population, or about 7.6 million people, will need to borrow in the next six months to meet their needs.
Turning to unregulated lenders represents a costly and risky solution, which can plunge borrowers into difficult-to-manage debt spirals. The situation is particularly concerning for families, with nine percent of parents having to turn to these lenders. This figure is double the national average and raises crucial questions about the long-term financial stability of British households.
What factors are driving families to resort to illegal loans?
Several factors contribute to this increase in illegal loans. One of the main reasons is the lack of affordable credit options. Nearly a third of respondents (35%) do not know where to turn for low-cost, short-term credit. This ignorance leaves borrowers vulnerable to often costly and predatory alternatives.
Moreover, periods of increased spending, such as the Easter holidays, heighten the need for additional funds. Nearly four million parents anticipate needing to borrow to survive the next six months due to the rising costs of outings and vacations when schools close. This financial pressure leads some to desperately seek quick solutions, often at the expense of their future financial security.
Borrowing from relatives is also on the rise, with a third of parents having borrowed from friends or family, compared to 21% on average in the UK. Similarly, 28% of parents have borrowed from their bank, more than double the national average of 16%. These statistics reveal an urgent need for structured and accessible financial support.
Creditspring’s call for affordable credit options
In the face of this crisis, Creditspring makes a clear call for affordable credit solutions. The company highlights the need to create transparent and responsible alternatives to help borrowers avoid the traps of illegal lenders. According to Neil Kadagathur, CEO and co-founder of Creditspring, “Parents facing a significant increase in costs during the Easter holidays will need financial support to cope; however, the number of people forced to turn to predatory and illegal lenders is a source of great concern.”
Creditspring offers an innovative approach with its credit subscription service regulated by the FCA, which provides members with two interest-free loans per year with clear repayment conditions, capped total costs, and no hidden fees. This solution aims to provide responsible and transparent credit, allowing borrowers to manage their finances without risking falling into unsustainable debt cycles.
Additionally, Creditspring has developed the Benefits Finder, a tool that helps users identify and claim the financial aids they may be entitled to but have not yet sought. Since its launch in Q4 2023, this tool has helped locate £1.9 billion in additional financial support, averaging £973 per month for eligible individuals. For more information on financial inclusion, check out our article.
The responsible solutions offered by Creditspring
Creditspring does not just identify problems; it also proposes concrete solutions to solve them. By relying on innovative and regulated credit models, the company ensures that borrowers have access to affordable and transparent loans. The monthly subscription model allows members to plan their repayments predictably, thus avoiding unpleasant surprises and exorbitant interest rates associated with illegal loans.
In addition to loans, Creditspring invests in financial awareness and education. By providing advice and resources on managing personal finances, the company helps borrowers make informed decisions and develop healthy financial habits. This includes information on microfinance and other financial tools that can strengthen the financial resilience of individuals and families.
Creditspring’s solutions are supported by strategic partnerships with other players in the fintech sector. For example, the collaboration between Done and Abound to promote AI-powered loans through open banking data (more information in this article) strengthens the offer of responsible and accessible credit. Such initiatives demonstrate Creditspring’s commitment to an inclusive and sustainable fintech.
The importance of financial inclusion and microfinance
Financial inclusion plays a crucial role in preventing recourse to illegal lenders. By facilitating access to affordable and reliable financial services, Creditspring helps reduce borrowers’ vulnerability to financial pitfalls. To gain a better understanding of the issues and solutions of financial inclusion, consult our guide here.
Microfinance is another essential aspect of this fight. By providing small loans and tailored financial services, it enables those who are excluded from traditional banking systems to fully participate in the economy. For a complete definition of microfinance, visit our dedicated page here.
Creditspring, as a key player in fintech, is committed to integrating these principles into its services. For example, one of their recent initiatives includes promoting AI-powered loans and open banking, a collaboration explained in detail here. This approach not only personalizes credit offers but also makes them more accessible and transparent to all users.
The positive impacts and testimonials
The impact of Creditspring’s initiatives is measured through the successes of numerous borrowers who have been able to regain financial stability thanks to responsible and affordable loans. For example, thanks to the Benefits Finder, many families have been able to access additional financial aids, thereby avoiding turning to illegal lenders.
Richard Lane, chief client officer at StepChange Debt Charity, emphasizes the importance of secure credit alternatives: “At StepChange, we know how much families across the country are struggling, and how debt can push people to desperate measures to cope with financial difficulties. It is essential to have safe and affordable credit alternatives that can prevent low-income individuals from turning to illegal lenders.” This collaboration strengthens the support network available to those who need it most.
Furthermore, Creditspring’s tools and services have helped discover nearly £1.9 billion in additional financial support, helping thousands of people every month improve their financial situation. These results demonstrate the effectiveness of the solutions offered by Creditspring and their contribution to a responsible fintech.
Explore more fintech innovations
Creditspring is just one example among many fintech unicorns that are transforming the financial landscape. To discover the ten most valued fintech companies, check out our list here. These innovative companies play a key role in promoting financial inclusion and creating responsible credit solutions.
Additionally, if you want to learn more about the different ways fintech can enhance your daily life, explore our other articles, such as how to boost your credit card rewards with merchants and while traveling.
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