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Unsecured Loans - UK - January 2017

“The unsecured personal loans market has experienced a period of strong year-on-year growth, as record low interest rates and rising consumer confidence have led to a rise in demand. However, the Brexit vote has led to uncertainty about the UK’s economic future, meaning people could be put off committing to long-term financial commitments in the near future.”

Jessica Galletley, Financial Services Analyst

This report looks at the following areas:

  • Short-term mindset makes loans unappealing
  • Vulnerable consumers should be given personal indicative rates
  • Soft-search tools will change the way people search and apply for loans

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Table of contents

  1. Overview

    • What you need to know
      • Products covered in this report
      • Executive Summary

          • The market
            • Growth expected to slow in the coming years
              • Figure 1: Forecast of the value of unsecured personal loans, by gross advances, 2011-21
            • Consumers are as likely to go direct or to a comparison site for loan information
              • Figure 2: Most likely source of information when taking out an unsecured loan, October 2016
            • Interest rates reach record lows
              • Figure 3: £5,000 and £10,000 loan interest rates, average credit card rates, LIBOR, and base rate, November 2010-October 2016
            • Companies and brands
              • Lloyds Banking Group is the market leader in personal loans
                • Figure 4: Value of outstanding balances for personal loans/unsecured lending (UK), by selected providers, 2014 and 2015
              • Adspend for unsecured loans falls by nearly half
                • Figure 5: Total above-the line, online display and direct mail advertising expenditure on loans, 2011/12-2015/16
              • High-street brands have higher levels of awareness and trust
                • Figure 6: Attitudes towards and usage of selected finance brands, December 2016
              • The consumer
                • One in 10 owe money on a personal loan
                  • Figure 7: Loan and credit product ownership, October 2016
                • People are most likely to have taken a loan with a bank
                  • Figure 8: Type of personal loan, October 2016
                • A fifth of credit users owe less than £500
                  • Figure 9: Amount owed on all loans and credit products, October 2016
                • Flexible features are important when considering a loan
                  • Figure 10: Interest in loan features, October 2016
                • Advertised rates play a big part in decision-making
                  • Figure 11: Attitudes towards interest rates, October 2016
                • Majority want to repay their debts as quickly as possible
                  • Figure 12: Attitudes towards borrowing, October 2016
                • What we think
                • Issues and Insights

                  • Short-term mindset makes loans unappealing
                    • The facts
                      • The implications
                        • Vulnerable consumers should be given personal indicative rates
                          • The facts
                            • The implications
                              • Soft-search tools will change the way people search and apply for loans
                                • The facts
                                  • The implications
                                  • The Market – What You Need to Know

                                    • ‘Other’ consumer credit growing faster than credit cards
                                      • Growth expected to slow in the coming years
                                        • Consumers are as likely to go direct or to a comparison site for loan information
                                          • Interest rates reach record lows
                                            • Write-offs total just 0.5% of unsecured lending
                                            • Market Size and Forecast

                                              • Unsecured lending continues to grow
                                                • Figure 13: Gross unsecured lending, 2006-15
                                                • Figure 14: Gross unsecured lending, 2012-16 (est)
                                              • Other consumer credit growing at a faster rate
                                                • Figure 15: Other consumer credit, 2012-16 (est)
                                              • Growth expected to slow in the coming years
                                                • Figure 16: Forecast of the value of unsecured personal loans, by gross advances, 2011-21
                                                • Figure 17: Forecast for gross lending for personal loans, 2011-21
                                              • The impact of the EU Referendum vote
                                                • Figure 18: Post-Brexit alternative market scenarios for the value of unsecured personal loans, by gross advances, 2016-21
                                                • Figure 19: Detailed post-Brexit alternative market scenarios for the value of unsecured personal loans, by gross advances, 2016-21
                                              • Forecast methodology
                                              • Channels to Market

                                                • Consumers are as likely to go direct or to a comparison site for loan information
                                                  • In reality, people will use a mix of sources
                                                    • Figure 20: Most likely source of information when taking out an unsecured loan, October 2016
                                                  • Generational differences point to future cross-selling challenges
                                                    • … whilst the use of family and friends for advice highlights need for unbiased source
                                                      • Figure 21: Source of information, by age, October 2016
                                                    • Loan-holders are slightly more likely to borrow from their main bank
                                                      • Figure 22: Financial product ownership and cross-sales, July 2016
                                                  • Market Drivers

                                                    • Interest rates reach record lows
                                                      • Figure 23: £5,000 and £10,000 loan interest rates, average credit card rates, LIBOR, and base rate, November 2010-October 2016
                                                    • Consumers benefit from increased competition
                                                      • CMA’s open banking proposals
                                                        • Innovative Finance ISA
                                                          • Credit conditions remain positive
                                                            • Consumer confidence sustains demand for credit
                                                              • Figure 24: Financial confidence, January 2009-October 2016
                                                            • Write-offs total just 0.5% of unsecured lending
                                                              • Figure 25: Annual write-offs of other unsecured lending to individuals, 2010-15
                                                          • Companies and Brands – What You Need to Know

                                                            • Lloyds Banking Group is the market leader in personal loans
                                                              • High-street banks target existing customers
                                                                • The rise of blending
                                                                  • Adspend for unsecured loans falls by nearly half
                                                                    • Lack of awareness means challengers struggle to differentiate themselves
                                                                    • Market Share

                                                                      • Lloyds Banking Group is the market leader in personal loans
                                                                        • Figure 26: Value of outstanding balances for personal loans/unsecured lending (UK), by selected providers, 2014 and 2015
                                                                      • Supermarket banks continue to perform well
                                                                        • Alternative providers fight for share
                                                                        • Competitive Strategies

                                                                          • High-street banks target existing customers…
                                                                            • … whilst challengers are open to all
                                                                              • Lenders move into the HCMTC market
                                                                                • P2P continues to gain traction
                                                                                  • Student loan providers seek greater market share
                                                                                    • Incumbents focus on digital to match Fintech lenders
                                                                                    • Launch Activity and Innovation

                                                                                      • Lenders increase loan sizes
                                                                                        • Doorstep loans adapt to changing channel preferences
                                                                                          • The rise of blending
                                                                                            • Credit cards as loans
                                                                                              • Loans as credit cards
                                                                                                • Secured loans as credit cards
                                                                                                  • Soft searches starting to be rolled out to loans
                                                                                                  • Advertising and Marketing Activity

                                                                                                    • Adspend for unsecured loans falls by nearly half
                                                                                                      • Figure 27: Total above-the line, online display and direct mail advertising expenditure on loans, 2011/12-2015/16
                                                                                                    • Payday lenders are the biggest spenders
                                                                                                      • Figure 28: Top 20 spenders on advertising for unsecured and payday loans, 2013/14-2015/16
                                                                                                    • TV attracts majority of adspend
                                                                                                      • Figure 29: Advertising spend for loans, by media type, 2015/16
                                                                                                    • Nielsen Ad Intel coverage
                                                                                                    • Brand Research

                                                                                                      • What you need to know
                                                                                                        • Figure 30: Attitudes towards and usage of selected finance brands, December 2016
                                                                                                      • Key brand metrics
                                                                                                        • Figure 31: Key metrics for selected finance brands, December 2016
                                                                                                      • Brand attitudes: Loan specialists recognised for offering something different
                                                                                                        • Figure 32: Attitudes, by brand, December 2016
                                                                                                      • Brand personality: M&S stands out for being exclusive
                                                                                                        • Figure 33: Brand personality – Macro image, December 2016
                                                                                                      • High-street providers associated with helpfulness and competency
                                                                                                        • Figure 34: Brand personality – Micro image, December 2016
                                                                                                    • Brand Analysis

                                                                                                      • Traditional challengers have high levels of awareness
                                                                                                        • Non-financial services brands influenced by consumer perceptions of other products
                                                                                                          • Sunny fails to shine
                                                                                                          • The Consumer – What You Need to Know

                                                                                                            • One in 10 owe money on a personal loan
                                                                                                              • People are most likely to have taken a loan with a bank
                                                                                                                • Flexible features are important when considering a loan
                                                                                                                  • Advertised rates play a big part in decision-making
                                                                                                                    • Protection products need to be repositioned
                                                                                                                    • Loan and Credit Product Ownership

                                                                                                                      • Two thirds of adults owe money on a loan or credit product
                                                                                                                        • Figure 35: Loan and credit product ownership, October 2015 vs October 2016
                                                                                                                      • One in 10 owe money on a personal loan
                                                                                                                        • Figure 36: Repertoire of loan and credit product ownership, October 2016
                                                                                                                      • Higher earners are more likely to owe money on a loan
                                                                                                                        • Figure 37: Ownership of any type of unsecured loan (including car loan/ other car finance plan and personal loan/ other type of loan), October 2016
                                                                                                                      • Credit ownership rises along with socio economic status
                                                                                                                        • Figure 38: Repertoire of loan and credit product ownership, October 2016
                                                                                                                    • Type of Personal Loan

                                                                                                                      • People are most likely to have taken a loan with a bank
                                                                                                                        • Figure 39: Type of personal loan, October 2016
                                                                                                                      • Specialist loan providers increase their market share
                                                                                                                        • Figure 40: Type of personal loan, by sources of information, October 2016
                                                                                                                    • Amount Owed on Loan and Credit Products

                                                                                                                      • A fifth of credit users owe less than £500
                                                                                                                        • Figure 41: Amount owed on all loans and credit products, October 2016
                                                                                                                      • Personal loan holders have higher outstanding balances
                                                                                                                        • Figure 42: Loan and credit product ownership, by amount owed, October 2016
                                                                                                                      • Over-55s tend to have lower outstanding balances
                                                                                                                        • Figure 43: Amount owed on all loans and credit products, October 2016
                                                                                                                    • Interest in Loan Features

                                                                                                                      • Flexible features are important when considering a loan …
                                                                                                                        • Figure 44: Interest in loan features, October 2016
                                                                                                                      • … and consumers want loans to adapt to changes in their finances
                                                                                                                        • Soft-search checks will dispel concerns over rejections
                                                                                                                          • On-the-go access is not that important for loans
                                                                                                                            • Added flexibility could attract potential loan users
                                                                                                                              • Figure 45: Interest in loan features, by agreement with the statement ‘I prefer to use other credit products (eg credit cards, overdraft) before taking out a loan’, October 2016
                                                                                                                          • Attitudes towards Interest Rates

                                                                                                                            • People recognise the differences between advertised and actual rates
                                                                                                                              • Figure 46: Attitudes towards interest rates, October 2016
                                                                                                                            • … but they still play a big part in decision-making
                                                                                                                              • Figure 47: Response to the statement ‘I look for the best advertised rate when selecting a loan provider’, by demographic group, October 2016
                                                                                                                            • People want to know how they can get the best rates
                                                                                                                              • Confusion means people look elsewhere
                                                                                                                                • Figure 48: Agreement with the statement ‘It's difficult to understand how to get the best rates’, by type of personal loan, October 2016
                                                                                                                            • Attitudes towards Borrowing

                                                                                                                              • Borrowers have an aversion to credit
                                                                                                                                • Figure 49: Attitudes towards borrowing, October 2016
                                                                                                                              • Protection products need to be repositioned
                                                                                                                                • Credit cards pose a challenge for the prime market
                                                                                                                                  • Two thirds of loan holders would have preferred to use a different credit product
                                                                                                                                    • Figure 50: Attitudes towards borrowing, any ‘Yes’, October 2016
                                                                                                                                  • Low repayments are key for younger generations
                                                                                                                                  • Appendix – Data Sources, Abbreviations and Supporting Information

                                                                                                                                      • Abbreviations
                                                                                                                                        • Consumer research methodology
                                                                                                                                          • Methodology
                                                                                                                                            • Figure 51: Attitudes towards interest rates – CHAID – Tree output, October 2016
                                                                                                                                        • Appendix – Market Size and Forecast

                                                                                                                                          • Additional best/ worst forecast table
                                                                                                                                            • Figure 52: Best and worst case forecasts for the value of unsecured personal loans, by gross advances, 2011-21
                                                                                                                                          • Forecast methodology

                                                                                                                                          Companies Covered

                                                                                                                                          To learn more about the companies covered in this report please contact us.

                                                                                                                                          Unsecured Loans - UK - January 2017

                                                                                                                                          £1,995.00 (Excl.Tax)