Irish households deep in debt with payday lenders and loan sharks

Loan Shark

When examining the global economy, we identify the fact that governments have gone into unprecedented levels of debt since the financial crisis. When we look even closer, we can determine that consumers are more indebted than ever before. No matter what part of the globe you are, there are plenty of households that are suffering from immense levels of debt.

This troublesome debt level is leaving many “vulnerable” to payday loans and loan sharks, says Tom Healy, director of the Nevin Economic Research Institute (NERI).

According to a new report, Irish households are facing huge amounts of debt. To put it into context, Ireland ranked No. 12 out of 24 of Organization for Economic Cooperation and Development (OECD) nations in household debt back in 2001. Today, however, Ireland has reached the third spot, ranking behind Denmark and the Netherlands, and just behind Norway.

Using OECD data, Irish household debt as a percentage of disposable household income exceeded 200 percent in 2014. This is much higher than the Irish government debt to GDP ratio of around 100 percent a year ago. Unfortunately, Irish households are facing substantial risks, Healy referred to it “as dangerous.”

“The trend in household debt since 2001 shows a pre-recession peak of 236% of net personal disposable income in 2007, up from 111% in 2001, which was probably well above the average in the previous decade,” said Healy. “In simple terms, a representative Peadar and Elizabeth Murphy-Smith with a combined debt of ?33,000 in 2001 [and] a combined income of ?30,000… six years later their combined debt had jumped to, say, ?120,000, while their income had risen to say ?50,000.”

Ostensibly, Irish consumers are engrossed in acquiring property because of easy money and low interest rates. As the boom continues and consumers receive higher wages and rising property values, households are overextending themselves. When a member of the household loses their job, experiences a pay cut or becomes ill, a major source of income is lost in the fragile home.

“When the property market collapsed in 2008-2010, along with a sudden stop in inter-bank lending, many households were straddled with huge amounts of personal debt in the form of mortgages which they were not able to service,” he said. The scale of mortgage distress rose sharply as many were forced into restructuring or non-payment.”

If such a collapse were to transpire and interest rates were to rise then many households would be very much vulnerable. Many consumers would be forced to dive into the “shadow world” that consists of websites like Landmark Cash that offer payday loans online and loan sharks with very high interest rates. This is especially true for impoverished households.

Essentially, Irish consumers need to rein in their spending and try to limit their debt intake. If not, then they could be prompted to take out a payday loan and perhaps go deeper into debt.

Although it’s a cautionary report in Ireland, many jurisdictions all over the world are suffering from the same fate. Oil-rich nations and states have experienced thousands of job losses, which then cause households to go into the red, lose their house and even take out payday loans. Regions that were once prosperous are now victims of the collapse in oil prices.

When there’s huge volumes of financially distressed consumers, payday loans become the alternative financial option to turn to.