Unexpected expenses pushing people towards high-cost credit
Two in five people have been hit by an unexpected expense in the past year, which is forcing some to turn to high-cost credit, Hargreaves Lansdown has warned.
The fund supermarket commissioned a survey of 2,000 UK adults in May 2023, which found that half of the respondents (49 per cent) were able to cover at least some of the cost with their savings, while 16 per cent borrowed from family and friends.
13 per cent put at least some of the cost on an interest-bearing credit card, nine per cent used their overdraft, nine per cent used buy now pay later, seven per cent used a loan and five per cent a payday loan.
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“It may feel like we’ve been blindsided by horrible surprises all year, but the proportion of people facing an unexpected expense has remained at two in five. The problem is that these expenses are much higher than we’ve seen before – and they’re forcing us to borrow,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.
“This year, unexpected expenses cost an average of £1,851 – up almost £400 from a year earlier. For some, the pain was even more acute, with almost one in 10 facing an unexpected bill of over £5,000.”
Unexpected expenses are most common among those aged 18 to 34, the research found, affecting 49 per cent of that age demographic.
When shock costs do arise, those aged 55 and over were far more likely to have savings to fall back on (71 per cent of respondents).
In contrast, those aged 18 to 34 were the most likely to use an interest-bearing credit card (17 per cent) or an overdraft (13 per cent).
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“Unfortunately an awful lot of people have spent their way through any emergency savings over the past year and a half,” Coles said.
“Among those on lower incomes, people are more likely to have borrowed. Basic rate taxpayers are more likely to have used every kind of borrowing to cover the cost – aside from overdrafts – than higher rate taxpayers. Borrowing for these costs is particularly problematic at the moment, because with prices rising on all sides, it’s hard enough to stretch our money to cover our expenses, without having to make debt repayments on top.”
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