As the short- term economic situation continues to improve in the country, banks and other financial intuitions are feeling more confident in lending to borrowers. This trend has been spurred on by the government encouraging lenders to improve their loan approval criteria. In a 2016 data publication by the Bank of England, lending has been on the rise for the past several years, and has now reached an all- time high. This has further increased during the past couple of years due to the advent of contactless payments. In the U.K., debit cards have always been used for regular expenditure, however, with the widespread launch of contactless credit cards in 2014, their use has gained an increasing share of the payment methods for everyday spending. This can be further explained by user data published by the UK Card Payment Association showing that nearly 10 per cent of the number of all contactless transactions in the country during the year of 2016 involved the use of contactless credit cards. This was a steady increase from the 6 per cent of all contactless payments made in the year of 2014.
This is just one indication of the public’s increasing willingness to use loans as a means to pay for expenses that they wouldn’t have in the past. Combined with improved credit approval systems implemented by financial institutions at the behest of the government, it is not uncommon to see more people being approved for loans who are able to repay their dues.
Credit card payments might be the most common type of payment method utilising loans in the country, however, as the economy moves further away from the recession, more types of credit lines are being offered for an increasing variation of spending. These spendings are used to pay for everyday expenses, fill in financial gaps in small businesses, entertainment and even mortgage payments.
According to an online lending company based in the U.K. majority of their medium- term loans were approved for borrowers to spend on attaining their car licences and pay for driving lessons. However, the company has noted that the average amount that was lent was not enough to meet all the expenses that are associated to put a new driver on the road. An analyst has broken down the total amount that an average customer borrows in order to be mobile in their own car. This includes taking out finance to pay for the insurance, finance for a car and even paying for the car tax in instalments (however, this is dealt by the DVLA).
Data collected from the Money Advice Service (MAS) of the U.K., about 26 per cent of all short- term loans were taken out for paying for car related expenses.
The Lloyds Lending Report of 2016 showed that nearly 20 per cent of mid- term loans provided by the company were approved in order to make either home improvements or repairs. This number is mirrored by the data provided by the Bank of England showing about 18 per cent of unsecured loans were approved during the year of 2016 for the same home related purposes. This number also includes nearly nine per cent of home boiler repairs and replacement related loans.
The MAS has stated that 11 per cent of credit taken out by borrowers during 2016 has been due to the rise of emergency situations. This percentage has included both short- term and long- term loans that had been approved during this period. This lending was not common only amongst the Britons earning lower that the median annual wage of £25,000, as shown by MAS. About 57 per cent of people who had used a particular shot- term loan company had annual earnings in the bracket of £25,000 to £50,000.
Credit Card Spending
Gross lending on credit cards in the U.K. has increased by about 5 per cent since the previous year, reported a financial advisory company. Although, the number of credit accounts have remained mostly constant throughout the previous decade, the actual cards in circulation have been steadily increasing during the past three years. This is primarily due to lower credit card interest rates and improved confidence in consumer spending. As a result, purchasing via credit cards is becoming more common by the year, especially in light of improved convenience provided by the launch of contactless credit cards in the country.
Entertainment and Luxuries
The improved financial security in the country has proven to be fertile ground for consumers to increase their taste for luxuries. This includes taking out personal loans for food and drink, experiences and goods like newer appliances and devices. Although most of these expenses are purchased using a revolving unsecured credit card, some more exuberant experiences like long holidays are paid using short- term and even medium term loans.