Family help: Social Fund needs expanding, research says
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Vulnerable people may find it more difficult to obtain credit in the future, a report has warned.
Lenders who specialise in the high-risk sector rely on face-to-face assessments and small "trial-run" loans when assessing applications.
But the study for the Joseph Rowntree Foundation said these lenders were looking into automated credit-scoring.
It fears the most needy may lose access to credit, as lending is more likely to be judged on profitability.
The report by the Personal Finance Research Centre said up to 6.2 million low-income people of working age could not meet fairly modest expenditure without borrowing.
As many as 750,000 of these people have needed to use a high-cost lender.
Credit exclusion
People on low incomes who are forced to borrow from expensive lenders can be charged interest of up to 400%.
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LOW INCOME GROUPS: MAIN CREDIT NEEDS
Small, unsecured, fixed-term loans in cash
Quick access to credit without lengthy or intrusive application procedures
Affordable weekly payments with no hidden or extra charges
Automatic repayment arrangements, such as deduction from benefit or home visits by a collector
Opportunities for making late payments or rescheduling loans without incurring extra charges when temporary financial problems occur
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The type of credit and how they borrow added to costs, the report found.
For example, people on low incomes were more likely to want quick access to credit without lengthy or intrusive application procedures.
They were also more likely to need opportunities for making late payments or rescheduling loans without incurring extra charges if their financial situation worsened.
As a result, their borrowing needs were largely met by specialist commercial lenders operating at the lower, more costly end of the credit market.
The report calls for better access to not-for-profit lenders and more money for the Social Fund.
The Social Fund offers emergency help in the form of loans and grants to people on low incomes.
"Whatever shape it takes some intervention is required to ensure that poor people have access to affordable credit," said Professor Elaine Kempson, co-author of the report.
"Left to its own devices, the commercial market will continue to move away from lending to the poorest people."
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