1.9m have turned to loan sharks in the past 12 months

Up to 1.9 million adults, equivalent to 4% of the population, are estimated to have used unlicensed money lenders or loan sharks in the past 12 months, according to an IPSOS UK survey commissioned by Fair4All Finance.

The cost of living crisis has exacerbated this situation for many, reducing households’ headroom to absorb unexpected financial shocks without turning to alternative means of finance. More than half (51%) of those who turned to unlicensed money lending practices were declined by at least one other form of credit in the past 12 months.

Having to turn to unlicensed lenders and loan sharks is not reserved to the most financially vulnerable in our society. A significant proportion (38%) of those using either an unlicensed lender or a loan shark are earning above £3,200 per month, far above the median monthly take home pay of £2,568 in the UK. While employment status can play a role in financial resilience, a similar proportion of full-time (3%), part-time (2%), self-employed (2%) and unemployed (1%) adults have taken out unlicensed loans or used a loan shark.

This is far below those on zero-hours contracts who are five times more (11%) likely to have used an unlicensed lender or loan shark in the past 12 months, compared to only 2% of those who aren’t on a zero-hours contract.

Other factors, such as a lack of credit history, particularly for younger consumers, may influence the use of unlicensed lending. 11% of those aged 18-24 had used an unlicensed lender, compared to 8% for 25-34 year olds, 3% of 35-44 year olds and just 1% of those aged 45-54.

Use of unlicenced money lenders is also a notable among households with children; nearly two thirds (65%) of those who said they had turned to an unlicensed lender or loan share in the past 12 months have children.

Many people are having to look close to home when it comes to borrowing money, with over a fifth (21%) of people taking loans from family or friends. Of those borrowing from family and friends, a significant proportion are from ethnic minority backgrounds or financially vulnerable sections of society. Those of a black ethnicity make up 48% of this group, compared to those of a white ethnicity who make 18%.

As well as placing a burden on family members who may themselves also be feeling financial pressures, lending money to people you know also poses a risk to family relationships and friendships. Almost one-in-ten (9%) of respondents who borrowed from family members, and 17% from friends, reported that their relationship weakened as a result.

Kate Pender, CEO, Fair4All Finance said “It is deeply concerning that nearly two million people have turned to unlicensed money lenders or loan sharks in the past year. It sends a clear signal that too many people are being left without safe, affordable credit options when they need them most. We must act urgently to expand access to fair credit and ensure people aren’t forced into dangerous financial situations.

“We need a coordinated response to tackle the root causes of illegal lending. That means mainstream lenders stepping up to offer small-sum loans, regulators ensuring protections are in place, and greater investment in community finance. We have seen great success with U.S. Small Dollar Loans initiative, which, if replicated in the UK, could prove incredibly constructive. Everyone deserves access to credit that supports, not undermines, their financial wellbeing.

“Illegal lending thrives when people feel they have nowhere else to turn. By expanding access to affordable credit, we can give people a safer path forward. This is about restoring dignity, protecting households, and building long-term financial resilience.

“It’s striking that over a fifth of the UK have turned to friends or family for a loan in the past year. For many, this appears the only option when faced with everyday costs and limited access to mainstream credit, be it their weekly shopping, energy bills or a broken washing machine. But relying on informal networks is not a sustainable solution, especially for vulnerable groups like younger adults, renters and those receiving benefits.”