The majority of UK loans are used to consolidate debt, with new cars and home improvements completing the top three uses of unsecured lending, according to figures released by Sainsbury’s financial arm.
Sainsbury’s Bank head of loans Peter Baillie states that 40% of personal loans are used to consolidate debt from other sources, rolling it up into one manageable amount with a single monthly payment. During the months of March and September loans are primarily used for the purchase of new cars which accounts for 30% of the annual totals, and there is a steady all year round demand for loans for home improvements, running at 25% of loans granted throughout the year.
Baillie added that customers who took out consolidation loans should consider whether the loan will clear off their debt, and not merely defer the problem for some time in the future, adding that it was important for customers to shop around, compare loans and make sure they were getting the best deal.
The figures from Sainsbury’s research are backed up by Moneysupermarket.com, who also discovered that over five millions Britons believe that they will never escape debt, while over 28 per cent of Brits - almost 12.7 million - have taken out a loan to consolidate some or all of their debt. But, almost 66% of those who had taken out a consolidation loan continued to build more debt through taking out more
loans, building up credit card debts or extending their overdrafts, with 21% of those questioned managing to build up more debt using all three.
Tim Moss, head of loans at moneysupermarket.com believes that debt has become part of the British psyche. He said: “Debt has become the curse of modern times. People need to be careful that the ease of credit doesn’t catch them out. It can soon spiral into a debt sentence.” And commenting on how times have changed in less than two generations, he added: “Forty years ago, being in the red was a last resort. It seems that many of today’s Brits are much more accustomed to taking on debt – although being able to control it is another thing.”
According to creditaction.org.uk personal debt in the UK is growing by £1 million every four minutes. Moneysupermarket.com has discovered that 31% of those in debt feel they can’t stop it spiralling out of control. With interest rates rising and the cost of credit increasing, unless people who take out consolidation loans can maintain the discipline to stop adding to their debt burden, rather than use it as a licence to start spending again, the number of Britons who feel they are trapped in debt will only increase.
