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Borrowers urgently need support ahead of Christmas –consumer confidence is falling & lenders must step up

by Wanda Rich
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upset business man working with laptop computer in office feeling stressed and anxious SBI 338237870

By: Neil Kadagathur, CEO of Creditspring

Neil Kadagathur, CEO of Creditspring

After a tough 18 months living with the Covid-19 pandemic, we’re all looking forward to spending some quality time with family this Christmas. Unfortunately for many households, the approaching holiday will bring added stress and financial struggle.

If that paints a bleak picture, that’s because the financial welfare of many households across the UK is pretty bleak right now. With many fearing things will get worse before they get better. This week’s findings from the Centre for Economics and Business Research (CEBR) show that consumer confidence is at its lowest level since March. In fact, people’s outlook on their finances fell by the third largest amount on record. Clearly, people are growing increasingly concerned about their financial stability.  

Household finances have taken a battering in recent months – the withdrawal of the Universal Credit uplift, soaring living costs and the spike in gas prices have put many in a perilous position. The fear is that the expensive Christmas period could be the final straw for some, pushing them over the edge and into debt.

The impossible choice of whether to eat or heat this winter is a terrible reality for many already and the number of people unable to make ends meet is likely to soar, unless borrowers receive more support from lenders. 

As savings pots dwindle, the risk is that households face falling into debt by turning towards forms of creditjust to stay afloat. Unfortunately, in the UK, there are up to 15m borrowers who struggle to access mainstream credit, this means that around a quarter of all adults could be forced to turn to high-cost options from lenders offering extortionate rates in the knowledge that people have nowhere else to turn.

These high-cost loans put borrowers in an almost impossible position. The repayments often soar to unaffordable levels, putting borrowers into spiralling debt with missed or late payments eroding their credit files – making it even harder to access affordable credit from mainstream lenders in the future. So the vicious cycle continues. 

Boosting access to affordable credit is a vital step to give borrowers more control over their money and unlock their borrowing options. This is more important now as we struggle through a climate where many household finances are in the worst shape they’ve been since the 2008 financial crisis. 

Ensuring that borrowers are presented with accurate and transparent information regarding additional charges and APRs is essential in protecting borrowers and avoid a household debt crisis in the UK. 

To be clear, this is the responsibility of lenders.

At Creditspring, we recently launched a new tool – Step- a credit builder allowing near prime borrowers to build their credit profile over time. Often the biggest issue impacting credit files is a lack of borrowing history, but this can also come with a risk of debt spirals for those who can only access high-cost options. Step allows people to repay small, no interest loans gradually over six months and gradually build a more comprehensive credit profile. This will unlock more options for borrowers in future as mainstream lenders will be far more inclined to lend if an applicant can demonstrate regular, on-time repayments. 

Tech developments have given lenders all the tools they need to support near-prime borrowers and ensure they have access to affordable credit. For example, by utilising open bankinglenders can securely have a better picture of affordability and ensure they are lending responsibly. It allows them to present borrowers with more appropriate and personalised financial products so they can manage their finances. 

Over-lending needs to become a thing of the past. The onus should be on lenders not borrowers to ensure that a loan is for a suitable amount and comes with an appropriate repayment schedule. Unfortunately, the credit industry is still plagued by a bad reputation and a lack of transparency. The fact that the most common complaint to the Financial Ombudsman Service is unaffordable lending gives an indication of how prevalent the issue remains despite efforts to clean up the industry. With UK households increasingly concerned about their finances, now is the time for lenders to step up and lend their support to under pressure borrowers.