High-cost credit: What’s the wider cost to consumers?

Author: Andrea Finney
Institution: University of Bristol
Type of case study: Research

About the research

The economic downturn has focused attention on consumers relying on high-cost credit, particularly for short-term loans.

This research was commissioned by the Department of Business, Innovation and Skills (BIS) to inform understanding of the likely impact of introducing a variable cap on the total cost of credit that can be charged in the short‐ to medium-term fixed‐rate credit markets.

The purpose of the research was not to make a recommendation to BIS on whether or not a cap should be introduced, but to provide an up‐to‐date evidence base that would help inform policy decision‐making in this area.

In more detail, the research covers home credit, pawnbroking, retail payday lending (carried out in‐store) and online payday lending. The analysis undertaken as part of the wider research project identifies levels of high-cost credit use in the general population and the characteristics of people most likely to use this type of credit. The researchers also explore the extent to which the use of high-cost credit impacts the financial well-being of individuals and their households, namely, the propensity to be in financial difficulty, levels of financial asset-holding and total wealth.

The analysis finds that high cost credit use is rare and, while it appears to be a key determinant of financial difficulties, it does not predict total wealth. Further, the use of high-cost credit correlates with financial difficulties independently of other factors. It does not impact on measures of well-being that might indicate or reflect the longer‐term situations of individuals and households (asset-holding and wealth). This contrasts to the use of mainstream credit, which is independently associated with a reduction in both the levels of assets and total wealth.


The study drew heavily on financial liabilities survey variables, with analysis undertaken at the person level. A significant amount of reprocessing of the raw data was necessary (using imputed versions wherever possible), in particular, to resolve joint credit and store card holding and identify types of high-cost credit separately from ‘mainstream’ sources – all within each question loop.

Some aggregation from person to household level was required and several household-level variables were also matched onto the person-level file, for example total wealth and tenure. Univariate and bivariate analysis complemented logistic and multiple linear regressions.


This research was published in the following media:

Collard, S.B., Collings, D.J., Davies, S.V., Finney, A.D., Hayes, D.A., Kempson, H.E., Morgan, P., Bolling, K., Hanson, T., Sullivan, S. and Smith, N. (2013) The impact on business and consumers of a cap on the total cost of credit, research paper, University of Bristol, Personal Finance Research Centre. Retrieved 28 August 2013 from http://www.bris.ac.uk/geography/research/pfrc/themes/credit-debt/total-cost-of-credit.html

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