The cost of living crisis has increased reliance on unsecured credit. Although 65% of unsecured credit holders say the cost of living crisis has made them focus on debt reduction, only 20% of Brits actually reduced non-mortgage debts in the three months to August or planned to do so in the next three months. This reflects that while debt reduction is a priority, immediate financial flexibility is more pressing for many consumers.
The main threat to current and future use of unsecured credit is the high cost of borrowing compared to pre-2022 levels. With rates much higher than consumers have been used to for most of the last decade and a half, and many households in a cautious, recovery mindset, medium- to longer-term structured credit products such as personal loans are particularly at risk.
Engaging with younger consumers represents a key opportunity. Younger groups are more inclined to use BNPL services, and are more likely to be exposed to credit offers on social media. By leveraging digital marketing through social media, aligning with FCA guidelines, BNPL and traditional credit providers can better engage with the next generation of borrowers.
Credit use has increased during the cost of living crisis. Lenders have supported vulnerable customers but can further improve understanding and engagement.
Saltanat Kuermannal, Financial Services Analyst
For the purposes of this Report, Mintel has used the following definitions:
Secured lending – lending that is secured against a property, ie the ownership of the property is at risk if repayments are not made to clear the debt. This is primarily mortgages used to purchase properties, but also includes homeowner loans where homeowners borrow additional funds secured against their home.
Unsecured lending – any type of lending that does not fit the definition of secured lending, ie lending that is not secured against a property. This includes a wide range of consumer credit products such as credit cards, personal loans, instant digital credit and current account overdraft facilities. Please note that this definition also includes car finance plans which can be secured against the vehicle being purchased.
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