Rachel Braverman, Research Officer, Money and Mental Health

Informal borrowing and mental health problems: our new research

People experiencing mental health problems often face a combination of low or fluctuating income, additional expenses and problems managing money, which can increase reliance on credit as a way to make ends meet. However, a poor credit history, complicated applications processes and the high interest and charges can put affordable mainstream credit out of reach.

When the boiler breaks down, benefits suddenly stop being paid or there’s just not enough money for day to day living expenses, people often turn to informal borrowing from family and friends. Our latest research reveals that people experiencing mental health problems are one and a half times more likely to be in debt to friends, family or acquaintances than others.

When informal borrowing works well

Our survey of over 400 people with experience of mental health problems suggests that informal borrowing is often very positive. People described extraordinarily helpful interventions by loving family and friends preventing a financial crisis, providing a welcome safety net and building a sense of social connection.

“It is reassuring to know that my family are able to support me in times of trouble and that they will not put pressure on me to repay. I am very lucky.”

What can go wrong

Whilst the flexibility of informal borrowing can be particularly useful for people with mental health problems, we also heard about problematic arrangements. Difficulties with memory, cognition and emotional strain associated with mental health conditions can make it hard for borrowers to understand the agreements they’d made. In some cases, the terms changed during the agreement, with repayments increasing or being demanded suddenly. Even where the repayment terms were clear, some people found themselves agreeing to more than they could afford.

“I was desperate and just agreed as I couldn’t cope with the stress of trying to find another way.”

Nearly half of those surveyed said informal borrowing strained or broke their relationship with the lender. The pressure and difficulty of repaying often took a toll on people’s mental health, with people reporting feeling ashamed, guilty, worried and scared. They told us about worsening depression, increasing anxiety, self harming and feeling suicidal.

“It has a hugely negative impact on my mental health and self esteem, triggering feelings of guilt, self criticism/loathing, and negative thoughts about my ability to cope.”

We also heard worrying stories of abusive behaviour by informal lenders, including taking or destroying people’s belongings. Some used the stigma surrounding debt and mental health to apply pressure to repay, broadcasting borrower’s circumstances on social media platforms. At the extreme end of the spectrum, we heard of people being coerced into illegal activities.

Reducing the need for risky informal borrowing

People experiencing mental health problems are all too often excluded from mainstream credit. They may be seen as too high risk, because of, for example, a poor credit history, previous debt problems or a low or fluctuating income. They are also less likely to have a savings cushion, so more likely to need emergency credit if there is a sudden income shock or unexpected expense, and least able to pay a high price for it.

Policy makers should therefore consider how they can support alternative lending provision to people in financial difficulty. In particular, we call on the government to extend the existing provision of Universal Credit (UC) Budgeting Advances. These are interest-free loans currently available to cover the waiting period between a people applying for UC and getting their first payment. We recommend extending this provision, so that claimants could access a low-interest loan to cover emergencies at any time during their claim. This could help reduce the risks associated with informal borrowing driven by a lack of alternatives.

Building norms of good informal borrowing

Establishing clear precedents about what good informal borrowing looks like could empower consumers to make agreements that are successful for both lender and borrower. Clarifying what is unacceptable behaviour on the part of informal lenders could also help people to know when they should seek advice. This could be particularly useful for people experiencing mental health problems, who may feel ashamed and guilty about their need to borrow. These tools could be offered through the new Single Financial Guidance Body, and potentially syndicated to other websites – such as those of advice charities – to maximise uptake.