1.7 million Brits are resorting to borrowing from high-cost lenders in order to clear debts, according to findings from a lender adviser, Creditspring — as Lending data transparency comes under criticism.
According to findings from The Mortgage Lender (TML) two thirds of UK people aged 18-34 are taking on new debt since the beginning of 2022.
Meanwhile, Creditspring says nearly a quarter of people in the UK (24%) who borrowed from premium-priced lenders resorted to seeking credit in order to repay pre-existing debts – propagating fears that millions of people in the UK have a large risk of spiralling into debt as their debt and interest repayments stack up.
Creditspring’s research suggests that more and more people are relying on credit to get by and meet living costs, with the younger demographic the most heavily impacted. More than one in 10 (11%) people in the UK between 18 and 34 have resorted to taking out new lines of credit in order to afford groceries, while 8% have used a new credit card to handle bills.
Reliance on lines of credit is growing. But transparency of secondary consequences to debt spirals, hidden fees, and all-around transparency is not keeping up. It is striking a hard blow on borrowers and promulgating more to go into hard data, including the younger generations.
Creditspring Warns of a “Debt Crisis”
The co-founder and CEO of Creditspring, Neil Kadagathur, warned that the UK was “teetering on the edge of a debt crisis”. He warned that the cost of living has risen so much that people were relying on credit with millions being backed into a corner with no choice but to borrow from multiple lenders in order to survive.
According to Neil, the situation is already desperate – and could spiral out of control at any point, putting “unimaginable financial pressure” on households. His viewpoint is, considering how reliant a substantial demographic is on credit currently, it is critical that the industry provides more awareness support to increase how well-informed decisions are regarding borrowing and reducing the risk of an “unimaginable debt spiral”.
His view that the lending industry is, however, still “opaque” particularly concerning borrowing fees data — leaving less savvy unaware of the “true cost” of borrowing. He says that this is hitting millions of people with unexpected, hidden costs.
Meanwhile, Inflation Intensifies
As the BoE warns of more interest rate hikes to come, Creditspring’s Chief Executive for Responsible Finance added that inflation was already pushing more people into “financial instability”.
Theodora Hadjimichael commented that credit wasn’t the solution to the cost of living crisis and did not resolve the imbalance between wages and living costs. But credit remains a “fact of life” that can be used to yet through uneven periods. But there is a culture of hidden charges and opaqueness that punishes borrowers.
Theodore described these pretty services as “exploitative” and urged that more effort be taken by regulators, policymakers and other investors to improve accountability.
Even those with a bit of cash aside to potentially pay off borrowing will have to fight a more hostile environment, making credit if a destructive long-term approach to death. 20% have used personal savings to clear debt, with the figure being almost double this at 39% for those aged 18-34.
Their findings, therefore, also highlight the trend of relying on savings to handle bills — with the figure at 11 million people in the UK only being able to manage bills by taking from their savings pots. Indeed, 21% of Brits use savings to pay bills, with 37% of younger people doing the same, and another 22% admitting that they will need to resort to loans once their savings run dry.
Takeaway — Applying Caution
CEO and co-founder, Neil Kadagathur says that millions of Brits are depending on their savings to survive the living crisis – and he believes that this will have a “disastrous impact on the future financial well-being” without something being done to drastically prevent it.
His viewpoint is that greater responsibility and less encouragement to take on high debts are needed across the board.
Hosting Data agrees with this viewpoint. While the situation is clearly complex, it’s a prudent rule of thumb that credit should only be taken on with extreme caution and necessity — with the British economy as it stands. If it cannot all be avoided, for instance through extreme frugality for communal and familial rallying of resources, these steps are more favourable.
