Analysis of bank lending data by BBC News has found the amount that households have in outstanding personal loans in Great Britain has increased by 25% in the past four years.
Lending data published by UK Finance shows that in Great Britain in 2013/14 there was £29.6 billion in unsecured debts to be paid back by consumers. Three years later in 2016/17 that figure had risen to £37 billion – an increase of £7.4 billion.
In comparison, wages have increased by just 6.5%, meaning that the value of unpaid personal loans in Great Britain has grown four times faster than wages.
Those living in the parts of Great Britain that have seen the lowest growth in wages, have seen the biggest proportional increases in unsecured debt.
According to the charity Christians Against Poverty, there eight million people in the UK worrying about their debts and unpaid bills. With two in every five people contacting the charity about their debts, saying they have either considered or attempted to take their own life.
Since 2016 the Bank of England has warned that the level of household debt – which it said “remains high by historical standards” – is one of the risks to the financial stability of the UK.
Discussion with 5 Live
Bev Budsworth, MD of The Debt Advisor was invited to chat to Nicky Campbell and Rachel Burden on Wednesday 8th February at 6.45 am. Bev’s responses to the questions asked are below.
Q What do you make of this new analysis?
We have been warning about growing levels of unsecured debt for some time. Total consumer debt peaked at £232 BN in Oct 09 and in Nov 17 this was £205.8BN. This covers all unsecured debt not just loans. We are clearly edging up to pre-crash figures of borrowing but what makes it feel worse is that people’s take home pay has barely kept pace with inflation. For many, their income has reduced as they have had to resort to working zero hours contracts where they could have good and bad weeks and have found they have had no real choice but to resort to borrowing to make ends meet.
We do need banks and lenders to take a more cautious approach to lending. The introduction of open banking means that banks have to allow their customers to share, with other providers, their financial data such as spending habits and regular payments. This will provide a lot more transparency on affordability and should mean that loans are not given when affordability is seriously in question.
Q We’re not talking about mortgages or car loans here are we?
No I understand the figures relate to unsecured loans made by banks to individuals
Q Is the best advice to avoid unsecured personal loans at all costs?
No not necessarily. You can get loans at reasonable rates of interest and if you know you can afford the repayments and have done a thorough budget and also are confident about your earnings, they can make sense and help you either reduce outgoings on credit cards or help you buy a car, etc. The problems generally come when loans are taken out to consolidate credit card debt and then the credit cards are used and maxed out again. We find that someone who has consolidated their debt several times with loans can often have upwards of £30,000 of unsecured debt.
Q If you need a loan, what are the most important things to look out for when shopping around for the best deal?
It really pays to shop around as there are peer to peer lenders such as ZOPA who offer very competitive rates but only if you have a really good credit rating. If alternatively your credit rating is poor, the rates can be very high (in excess of 50%) and chances are these types of lenders will want you to provide a guarantor. Our experience of these kinds of lenders is that they are not great when it comes to helping you if you get into difficulty. They will pursue the guarantor and quite often this traps people into debt as they are too scared to consider a debt solution which would trigger action against the guarantor who is often a family member.
Q Do you have any top tips about how best to pay off an unsecured loan?
This depends on your affordability and how much other debt you have. Paying less than the contractual monthly payment is likely to affect your credit rating and you could end up with a default notice that stays on your credit record for 6 years.
However, if you find you are struggling with your repayments it makes sense to get advice on your options. There are options which will allow you to repay what you can afford over a period of time with the balance remaining written off. This sort of plan is known as an IVA and is a formal solution and again will affect your credit rating.
Q How easy are these loans to write off?
Debt has to be dealt with. Writing off debt will mean you have to enter into some sort of debt solution including Bankruptcy, Debt Relief Order or IVA. These solutions can help you get your life and finances back on track but they will all have disadvantages and risks which need to be carefully considered.
If you find you need some help with problem debt, get in touch. As detailed above there a range of solutions depending on whether you are salaried or self employed or you are a director or shareholder of a limited company. Should you enter into a debt solution with us, fees will apply. If you would like our team to call you, please use our contact form.
All debt solutions need to be carefully considered. IVA’s are formal solutions and failure to keep to the terms can result in your IVA failing and you could end up bankrupt.
There is also free debt help and advice available through a variety of debt charities. For more information, we recommend you visit www.moneyadviceservice.org.uk.
The Debt Advisor is Authorised and regulated by The Financial Conduct Authority (reg no: 659920).