NEARLY 1.4 MILLION UK BORROWERS RELY ON PERSONAL LOANS TO PAY OFF EXISTING DEBT
- Nearly a quarter (22%) of people took on a personal loan to pay off existing debt
- One in ten borrowers (13%) have had a personal loan application declined
- 10% said they were rejected because they had made too many credit applications already
- One third were rejected as they already had too much debt.
29 January 2020 – UK consumers risk falling into spiralling debt by taking on additional credit to pay off existing loans. According to the FCA, the number of people taking out personal loans over a year totals 6.3 million, and new research fromcomparethemarket.com highlights that over one fifth of consumers (22%) are taking out loans to pay off existing debt, as national levels of consumer borrowing continue to rise. This equates to almost 1.4 million borrowers nationwide.**
Data from the Bank of England shows that consumer debt has increased by nearly £60 billion over the last five years***. Today’s research suggests that mounting levels of borrowing are increasingly becoming an issue for many adults who are struggling to keep up with other repayments.
According to comparethemarket.com’s research, one in ten borrowers (13%) say they have had a personal loan application declined.Of those who have had an application declined, a third (33%) said they failed to get the loan because they had too much debt already. The most common reason for a loan rejection was poor credit history (51%) and one in ten said they were rejected because they had made too many credit applications already.
The majority (58%) of respondents did not know what their credit rating was, and 82% had never checked how much they could borrow via a soft check before applying for a personal loan. To help make it simpler for customers to check their eligibility, comparethemarket.com has launched its Personal Loan Eligibility Checker. This soft checker calculates the percentage chance of being accepted for a loan, without impacting a borrower’s credit score.
The Personal Loan Eligibility Checker is the latest innovation from the Simples Lab – comparethemarket.com’s innovation laboratory which develops creative solutions to keep consumers’ lives simple through giving them the confidence to make good decisions, and to reduce the amount of administration when it comes to managing household finances.
Tips for becoming a Better Borrower
- Make sure you’re up to date on paying all your bills
- Avoid making multiple credit applications in a short space of time, utilising soft searches to check your eligibility instead
- Make sure any mistakes on your credit score are corrected
- Try not to max out all your available credit
- Where possible, try to clear your credit balance at the end of every month
- Avoid missing credit card payments
- Watch out for any fraudulent activity on your accounts
- Use your overdraft responsibly and avoid unauthorised borrowing.
John Crossley, Head of Money at comparethemarket.com said:
“The way we view and manage debt has changed, with over one-fifth of borrowers now utilising personal loans to pay off existing debt. If poorly managed this can lead to a spiral of repayments, which could be damaging to people’s credit score or way of life if they cannot afford the repayments. Making a small change, like using an eligibility checker or switching to a 0% interest credit card, could make all the difference in improving your financial health and making debt more manageable.
“Our research shows that some consumers are unable to get credit because their credit score has been impacted by multiple credit checks. When applying for credit, it can be helpful to carry out a soft credit check online, which doesn’t leave a mark on your history, while also making sure you have enough funds in place to be able to meet monthly repayments.”
Notes to editors:
Polling data was conducted by Populus in a survey 2,080 UK adults between 25nd-27th October 2019.
**1.4 million borrowers
- FCA report on the financial lives of consumers across the UK (page 107): The number of people taking out personal loans over a year totals 6.3 million, according to the FCA’s latest available data from 2017
- comparethemarket.com research finds that one-fifth (22%) who had a personal loan did it to pay off existing debt; 22% of 6.3 million = 1,386,000 people
***Consumer debt has increased by £60 billion in the last five years: Bank of England LPMBI20
- Monthly amounts outstanding of total sterling consumer credit lending to individuals in sterling million
- £225,259 million (November 2019) - £168,410 million (November 2014) = £56,849 million
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