Home Mental Health & Well-Being Stigma Around Pay-Day Loans Affects Borrowers’ Well-Being and Stops Them from Getting the Support They Need

Stigma Around Pay-Day Loans Affects Borrowers’ Well-Being and Stops Them from Getting the Support They Need

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The stigma around payday loans has significant negative mental, emotional and social effects on borrowers and leads to them concealing the use of such services, preventing them from accessing vital support and resources, according to new research by Durham University Business School. This amplifies the financial impact of high-cost loans, and makes borrowers vulnerable to exploitation and predatory financial services.

The researchers say that payday loan services should be treated by regulators in the same way as gambling, smoking and other stigmatised industries, due to the impact that their usage has on borrowers’ mental, financial and social well-being.

This study was conducted by Chrysostomos Apostolidis, associate professor of Marketing at Durham University Business School, alongside his colleagues Dr Jane Brown, Newcastle University and Prof Jillian Farquhar, Solent University. The researchers wanted to understand not only the effects of stigma on people who borrowed from payday loan companies, but also the spillover effects on the family, friends and wider social and financial environment of borrowers too.

The researchers found three overarching effects that these types of loans can have on the borrowers;

  • Payday loans had a damaging effect on borrowers, and often spiralled users into more debt due to the high interest rates, but also the stigma such loans typically have. This can be incredibly damaging to the users financially, but also in terms of their emotional, social and mental wellbeing.
  • Payday loans also affect the relationships of the borrowers with family, friends and other members in their environment as users often hide the fact that they have used these loans, due to the stigma surrounding them. Concealing this can amplify the negative effects these loans can have, as it limits the potential of borrowers to get the support they need because of shame or embarrassment of using the service.
  • However, the findings reveal that some payday loan users have actually had positive experiences with payday loans and feel that the service has enabled them to access funds required to support and improve their financial, emotional and social well-being. This is commonly associated with careful financial management, as users often report being able to pay the loans back after a short period of time. This highlights the important role of financial literacy and education to reduce indebtedness and financial vulnerability in the society.

To uncover their findings, the researchers interviewed a number of payday borrowers in the north of England, as well as the friends and family of people who had borrowed, and people who are involved in the payday loan industry, on their lived experiences with and impact of   payday borrowing.

“It is estimated that over threequarters of the UK have some form of personal debt, and unfortunately not everyone can access funds from banks and other traditional lenders. Many people turn to these shortterm, highinterest credit options as a means to plug a gap, however often it is those who are in vulnerable circumstances who fall prey to these loans.” says Professor Apostolidis. “And with the stigma surrounding the use of this borrowing method, many users do not want to admit to using them, which can in turn negatively impact their finances and well-being further, causing them to spiral.”

The researchers say that more needs to be done in terms of regulation of the high-cost credit industry, and it must be widely viewed and categorised as a difficult-to-get-out, stigmatised service, that can leave people vulnerable to exploitation.

The researchers say it is clear there is a ‟ tipping point where the effects of borrowing become unmanageable, and more needs to be done to break the stigma, provide support and education and create less exploitative and predatory alternatives for vulnerable people to access emergency funds or short-term loans to support their needs. 

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