According to a study conducted by SalaryFinance, an employee loan firm and Toynbee Hall, a charity, Poor credit scores push millennials born after 1982 out of cheap credit. They are forced to resort to painfully expensive payday loans. They are found to pay much higher rates on credit cards and loans compared to those born before that year. It is also discovered that borrowers of this generation are more likely to apply for expensive payday loans compared to baby boomer generation. They also applied for these loans more frequently.
Poor scores everywhere
The SalaryFinance/Toynbee Hall analysis also established that millennials have a greater chance of having poor credit records compared to older individuals. This is due to a number of factors, including the absence of a payments track record and incidence of lower scores due to the utilization of payday loans. According to Carl Packman of Toynbee Hall, young individuals suffer from a paucity of chioices and the pressure of increased insecurity and low remuneration jobs. These and borrowing money due to necessity can only be possible through alternative finance. The latter include family, friends and payday loans. Advantage of the first two is a rarity nowadays.
Payday loans carry much more borrowing costs than mainstream finance. It also lowers a borrower’s credit scores. It follows that a person with lower credit scores will be unable to access cheaper finance in their future. This is quite a loss as credit card and loan providers have given competitive rates during the last few years. Personal loan rates have fallen through the floor, with a number of banks offering just three percent interest rate. Banks themselves have tried to attract customers having credit cards with longer no-interest periods. One company even went to the extent of offering 30 months no-interest spending.
Millennials are paying much more than the generation born before them. The analysis revealed that the post 1982 generation is paying a whopping 18 percent for loan amounts up to £5,000. Those born between 1965 to 1981 pay 16 percent and people from 1946 to 1964 pay 15 percent. Baby boomers typically apply for about four payday loans in a year, compared to more than seven for millennials. Packman is of the opinion that in case of younger individuals, the relative ease of applying and then getting the payday loan compared to smaller amounts of a personal loan from any bank has outweighed any actual risk of falling to a debt cycle.