Payday loans have been identified in a new report as the “unhealthiest” form of credit, with unauthorised overdrafts coming second.
More than 500 borrowers were asked about the impact that different forms of credit had on them to compile the findings.
The report, from health education charity the Royal Society for Public Health (RSPH) ranked payday loans as having the most negative impact on mental well-being, followed by unauthorised overdrafts, doorstep loans and weekly payment stores.
The research was welcomed by Michael Sheen, who this week revealed he has decided to scale back his acting career to devote himself to campaigning against high-interest credit providers such as Wonga and BrightHouse, and working to find fairer alternative sources of credit.
Sheen, probably best known for playing Tony Blair in several films, has launched the End High Cost Credit Alliance, a campaign group of politicians, charities and tech firms that will work to promote more affordable ways of borrowing.
He says: “We share a moral responsibility to help protect vulnerable customers from the harm high-cost credit causes. The evidence on the impact on our health and well-being is now overwhelming. We have the evidence. Now we need action.”
For each form of credit that someone said they had used in the past two years, those surveyed were asked how trying to keep up with repayments made them feel – for example, angry, depressed, anxious, ashamed or guilty.
Nearly half (49%) of credit users who drink alcohol said they drink more as a result of their debt, rising to three in five (62%) among payday loan users.
The report found catalogue credit came out with better scores than some more mainstream forms of credit.
It said catalogue credit can become part of people’s weekly budgets and the products involved – clothes and consumer goods – may make people feel good, even if only for a short time.
Credit unions came out very positively in the report. These are not-for-profit co-operatives owned and controlled by their members.
The Financial Conduct Authority (FCA) has been investigating the high-cost credit sector, and in recent years has capped the overall cost of a payday loan.
Trade body UK Finance, which represents banks and other financial firms, points out that an unauthorised overdraft is not something which is marketed to people, and tends to happen when someone has miscalculated their finances.
Meanwhile, banks point out that they send text alerts to help people avoid slipping into the red.