The UK debt market continues to expand, with unsecured lending reaching record levels. Over two-thirds of UK adults now carry personal debt, with credit cards remaining the most widely used product. BNPL services have surged in popularity, becoming the second most common unsecured credit product, utilised by a third of consumers.
Economic recovery remains uneven, and persistent inflation has led to differing credit needs among demographics. More affluent households are leveraging credit to fund lifestyle aspirations, while lower-income households take on debt to cover essential expenses. This growing dependence on credit, often without sufficient financial education, has fuelled a rise in financial anxiety, with most consumers linking debt to poor mental wellbeing.
For lenders, this evolving landscape presents challenges and opportunities. While there is significant potential to innovate and meet the demand for flexible credit solutions, there is also a need to address the rising financial vulnerability of many consumers.
This report looks at the following areas:
- The impact of rising inflation and falling interest rates on consumer borrowing patterns
- Current consumer credit use and preferences, including the growing popularity of buy now, pay later
- Motivations behind consumer borrowing and the diverging realities this reveals
- Future credit needs and the increased trust in lenders among new borrowers
- Barriers to consumer credit use, including the power of financial understanding and education
- How borrowers perceive debt and credit, and the relationship between debt and mental wellbeing.
Credit use continues to rise amid cost of living concerns, but lenders must uphold responsible lending practices to both support and protect the most vulnerable customers.
Katie Owens-Davies, Financial Services Analyst
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EXECUTIVE SUMMARY
- What you need to know
- Outlook for consumer credit
- Opportunities for the credit market
- Integrate deferred payment features to capture demand for flexibility
- Lenders need to create a positive credit experience through increased education and empathy
- Promote luxury credit offerings to capture growing consumer confidence
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THE MARKET
- Inflation continues to rise above the Bank of England’s 2% target
- Graph 1: consumer prices index inflation rate, 2021-25
- Rising prices sustain cost of living concerns…
- …driving more households to seek credit
- Graph 2: gross consumer credit lending (excluding student loans), 2016-25
- Unsecured credit interest rates stabilise, but remain elevated
- Graph 3: quoted interest rates on personal loans, 2019-25
- Graph 4: quoted interest rates on credit cards and overdrafts, 2019-25
- Changing priorities push household debts to record high
- Graph 5: monthly amounts outstanding of unsecured lending (excluding student loans), 2016-25
- Secured lending rises despite affordability challenges
- Graph 6: gross secured lending to individuals, 2019-25
- Mortgage rates remain high despite base rate cuts
- Graph 7: monthly interest rate of UK MFIs for selected types of mortgages, 2019-25
- Regulatory and legislative changes
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THE CONSUMER
- Household debt and use of credit
- Credit use is embedded in Brits’ financial lives
- BNPL continues its rise in popularity among borrowers
- Graph 8: types of credit used or that money is owed on in the last two years, 2025
- A quarter of unsecured credit customers owe more than £5,000
- Most borrowers limit their debt levels, but rising need is adding pressures
- Higher earners leverage credit to fund lifestyle goals
- Reasons for borrowing
- Growing number rely on credit to cover the essentials
- Graph 9: reasons for borrowing, 2025
- Credit remains vital for struggling households amid rising prices
- Younger borrowers most likely to take out credit on behalf of their family and friends
- Enhance affordability checks and customer data analysis to protect younger borrowers
- Future credit needs
- The majority of borrowers planning to increase their debt are under 45
- Demonstrate commitment to responsible lending to maintain younger borrowers’ trust
- Integrate family budgeting tools and offer tailored incentives to assist parents
- Educate younger borrowers to reduce potential financial harm
- Barriers to use of credit
- Just the idea of owing money reduces the appeal of seeking credit for many
- Lenders still have an opportunity to target the credit averse consumer
- Digital offerings must not come at the expense of inclusivity or brands risk alienating consumers
- Financial capability and mental health
- Improving financial literacy will reduce anxieties around debt and build consumer resilience
- Debt has a major impact on mental wellbeing
- Introduce tailored support services to reduce debt’s impact on mental wellbeing
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INNOVATION AND MARKETING
- Firms look to reduce barriers to borrowing and expand access to responsible credit
- Santander acquires TSB, strengthening its consumer credit market presence
- Unsecured credit continues its digital evolution
- New mortgage products emerge as regulatory shifts challenge homeownership
- Ad spend on credit and loan products rebounds
- Graph 10: total above-the-line advertising expenditure on credit and loan products, 2020/21-2024/25
- Lending Stream seeks to remove the taboo of high-cost, short-term lending
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APPENDIX
- Report scope and market definition
- The consumer
- Consumer research questions
- Consumer research methodology
- Nielsen Ad Intel coverage
- Abbreviations and Terms
- Abbreviations
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