High-cost credit is rising across the UK, particularly among people already struggling financially. Financial Conduct Authority (FCA) figures show the number of adults using high-cost credit rose from 2.8 million in 2022 to 3.5 million in 2024, a 25% increase in just two years.
Credit products like payday loans, catalogue credit and rent-to-own (RTO) agreements are often used when mainstream borrowing has been refused and there are bills that can’t wait.
Despite new rules around affordability checks, repayments can still quickly become unmanageable. What begins as a single short-term loan can turn into multiple repayments with different lenders, making it harder to keep up each month.
There should be no judgment attached to using household credit to get through a difficult period. The important thing is understanding your options if those debts have become unmanageable.
What counts as high-cost credit?
High-cost credit includes consumer credit that carries very high interest rates or expensive repayment terms compared to standard loans or credit cards.
Common types of high-cost credit include:
- Payday loans
Payday loans are a form of high-cost short-term credit designed to last until your next payday. They are usually easy to access, but interest and charges build up quickly if repayments are missed or extended. - Catalogue credit
Catalogue credit and store cards are forms of retail finance offered at the point of sale, often used for clothing, furniture or household items. Monthly payments are spread over time, and interest is often added on top. - Logbook loans
Logbook loans are loans secured against your vehicle. If repayments are missed, the lender may be able to take the vehicle. - Home-collected credit
Sometimes known as doorstep loans. A lender provides cash directly and collects repayments in person each week or month, usually with high interest charges attached. - Rent-to-own agreements
Used for items such as sofas, fridges or washing machines. Weekly payments spread the cost over time, but the high prices charged mean the total repaid is often far higher than the item’s original value.
A lot of people use these forms of household credit to cover essentials rather than luxuries. Food shopping, utility bills, school costs and emergency expenses are common reasons for turning to this type of borrowing.
Why People Use High-Cost Credit
High-cost credit is rarely taken out without careful thought. In many cases, it happens after mainstream financial services have already refused other borrowing options.
Research from the FCA shows that households earning under £15,000 a year face a credit refusal rate of 41%, compared with an average of 28%. When mainstream banks decline to lend you money, high-cost lenders may feel like the only remaining option.
This type of borrowing is often used to deal with immediate financial pressure. That could include covering rent, replacing a broken appliance, paying utility bills or managing unexpected costs before payday.
The FCA and the Credit Information Market Study highlight that 65% of people using high-cost credit already show signs of financial vulnerability. Plus, around 28% already meet the FCA definition of ‘serious financial difficulty’. A lot of borrowers are already struggling before they take on this kind of debt.
For some, high-cost borrowing provides short-term relief. The difficulty comes when repayments become hard to manage and more borrowing is needed to keep up with existing debts.
Why High-Cost Credit Debt Builds Up Quickly
High-cost credit products can quickly become difficult to manage because of the interest, fees and repayment structures attached to them.
A common pattern starts with one payday loan, catalogue account or home credit arrangement used to cover a shortfall. When repayment is due, there may not be enough money left for rent, bills or food, leading to more borrowing.
Over time, people can end up juggling several debts at once, including energy bills, catalogue balances, overdraft debt and buy now pay later (BNPL) repayments. Minimum payments and ongoing interest and charges can make balances harder to clear, leading to persistent debt.
By the time many people seek help with unsecured debt, they are often dealing with several creditors and struggling to keep up with monthly repayments.
What help is available for high-cost credit debt?
If high-cost credit repayments are becoming difficult to keep up with, it is important to know that debt solutions are available. The right option will depend on your income, household spending and the total amount of unsecured debt you owe.
For some people, the first step is getting a clear picture of what they owe and finding a way to stop borrowing from one lender to repay another. Seeking advice early can make it easier to regain control before the situation becomes more serious.
Can high-cost credit debts be included in an IVA?
Many forms of high-cost credit are classed as unsecured debt, which means they can often be included in an Individual Voluntary Arrangement (IVA).
This can include:
- Payday loans
- Catalogue debt
- Home collected credit
- Personal loans
- Credit cards
- Overdrafts
Some guarantor loan agreements may also be included, depending on the circumstances.
An IVA is a legally binding debt solution that combines qualifying unsecured debts into a single monthly repayment over a set period, usually 5 or 6 years. Once the arrangement has been completed successfully, any remaining included debt is usually cleared*.
For those dealing with several high-cost lenders, an IVA can simplify repayments into a single monthly payment, calculated around your income and essential household spending.
A credit review with an experienced adviser early on helps you understand which debt solutions are realistic for your situation before the problem becomes harder to manage.
Get Advice on Managing High-Cost Credit Debt
If repayments are slipping, it’s worth getting advice before things get harder to untangle. Debt problems often become easier to deal with before missed payments, defaults or further borrowing start to build up.
At NDH Financial, we can help you review your unsecured debts and understand which solutions may be suitable for your situation. This includes looking at if an IVA could help combine repayments into a more manageable monthly amount.
Every situation is different, and advice should always be based on your individual circumstances. Speaking to an experienced insolvency practitioner can help you understand your options clearly and take the next step with confidence.
