Is consumer confidence growing as debt repayments rise?

A survey conducted by Lloyds Bank has confirmed that increasing numbers of people are keeping up with debt repayments. In particular unsecured loan and credit card repayments.

A survey of nearly 4,000 people by Lloyds Bank has found that more people are keeping up with unsecured loan and credit card repayments. Furthermore, there is evidence to suggest that customers feel that they will not need to take out more debt in the future. So is consumer confidence finally growing?

According to the survey 84% of people are now able to meet all their debt repayments, compared to 81% in the first quarter of 2015. Furthermore, those that missed payments has also decreased over the last 12 months, from 13% in the first quarter of 2015, to just 11% now.

Sam Clark, Head of Loans at Lloyds Bank said: ‘We are starting to see encouraging signs as more people can better manage their loan repayments. Overall, the results paint a positive picture and the upward move in consumer confidence will help a lot more people feel more in control of their finances.’

Consumers also gain increased financial confidence from low inflation rates and wage rises. The GfK forecast on personal finances over the next 12 months has risen from 1 to 6 points in October 2015, which again is a positive sign.

The on-going unsecured loans war between lenders has also helped consumer confidence grow. Sainsbury’s Bank is currently offering its’ lowest ever rate of 3.5% per annum on amounts between £7,500-£15,000 for terms between 1-3 years. Indeed, Nationwide, M&S Bank, Cahoot and First Direct are now also offering 3.6% on medium sized personal loans.

A consistently low borrowing rate has also been a major factor. Despite threatened increases, The Bank of England base rate has been at 0.5% since March 2009 and remains at this record low. Once again however Bank of England governor, Mark Carney has suggested that this rate could rise towards the end of 2015. This would impact massively on the mortgage market, and may see some people struggling to cope as repayments would inevitably increase.

The Lloyds survey confirmed that the most common reason for borrowing money is to consolidate existing loans. But fewer are taking out personal loans to pay for home improvements, with a 5% drop, from 20% to 15%. It concluded further, that men were also more likely than women to use an unsecured loan to fund a birthday or anniversary. Overall 52% of people have some form of unsecured loan over £1,000.

The Financial Conduct Authority (FCA) has introduced tough new measures into the payday loans section. The new regulatory framework is intended to help the most vulnerable consumers and help stop debts getting out of hand. Short-term lenders are now banned from rolling over a loan more than twice, and they can only make two unsuccessful attempts to claw money back out of a borrower’s account.

However, recent research conducted the Consumer Finance Association, which represents short-term lending businesses in the UK, has warned that a rising number of borrowers are now turning to loan sharks since the introduction of the new rules.

Furthermore, we have also seen a rise in so called ‘bad credit’ lenders. Although many only deal with secured loan products, an increasing number are starting to offer a more broad range of unsecured loans. As they offer to those with less than perfect credit, and let’s face it, that’s a lot of us, they are becoming increasingly more important in boosting consumer expectation. As the High Street banks become ever more difficult to borrow from, it seems that there is a good solid solution that many consumers are turning to.