When it comes to loans, a percentage point can make a world of difference; however, new research from Mintel on unsecured loans
finds the majority of unsecured loan* borrowers are living in ignorance as three in five Brits (60%) admit they are unaware of the interest rate being charged.
And while more often than not, age brings wisdom, a staggering 74% of Brits aged 45-64 with structured personal loans** say they do not know the rates they are paying. Similarly, women (70%) are considerably more likely than men (51%) to be unaware of the rate.
Although 58% of consumers spent time trying to find the best deal possible when they took out their last unsecured loan, it seems that for many Brits acceptance of a loan can be more important than the rate. Indeed, more than half (54%) of 18-44s say that it is more important to be accepted for the loan than the rate of interest charged
; this compares to 41% of consumers over the age of 45, and 48% of consumers in total.
Overall, 61% of adults owe money on a loan or credit product. Credit cards (37%), current accounts overdrafts (16%), personal loans (12%), Student Loan Company loans (11%) and mail order/store credit (9%) account for the top five loan and credit products.
Meanwhile, 8% of consumers say they owe money in the form of a loan from family and friends.
Sam Marks, Financial Services Analyst at Mintel, said:
“The fact that so many borrowers don't know the interest rate they're paying on their loan suggests that many Brits simply opt for the most convenient option, rather than shopping around
. Half of consumers say they didn't consider other ways of borrowing when taking out their last personal loan, which suggests that many don't have the time to consider all of the options open to them.”
“The market is still heavily reliant on cross-selling as most consumers resort to checking rates with their main current account provider. However, price comparison websites and the rise of soft-searches have given consumers a wider array of lenders to choose from and this has increased transparency in this market.”
It pays to go online
While more than half (56%) of borrowers arranged their last loan online, two in five (40%) borrowers still choose to arrange their personal loan using offline methods.
Online usage rises to almost two thirds (64%) for borrowers aged 18-44.
But while traditional channels are still widely used, Mintel research reveals that face-to-face isn’t always the best option. In fact, 26% of consumers who applied online got a loan charging 2-5%, compared to only 9% of those who arranged loans face to face.
“Part of the reason for the success of arranging loans online is due to the convenience
brought about by price comparison websites. But despite the popularity of online loans, traditional channels are still very much in use among a significant proportion of loan customers who value the reassurance of speaking to someone face-to-face.” Sam continues.
Young consumers have more high cost credit
Young Brits aged 18-34 (34%) are more likely to have high cost credit (which includes payday, doorstep and guarantor loans) than consumers aged 45+ (10%). Consumers aged 18-34 are also much more likely to have a guarantor loan (14%) than those aged 45+ (3%).
“Young consumers’ ability to get cheap loans may be impaired by shorter and potentially more erratic credit histories, leaving them with fewer options.
Providers would do well to offer further guidance to young consumers about improving their eligibility for other loans and credit options.” Sam concludes.
* Unsecured loans are based on an applicant’s creditworthiness and are not secured using collateral such as a property. They include personal, high-cost short-term credit, payday and peer-to-peer loans.
** Structured personal loans are those from a bank/building society, specialist loan company or peer-to-peer loan.
Research for this report was carried out among 1,941 internet users aged 18+ in October 2017.
Press copies of Unsecured Loans UK report and interviews with Sam Marks, Financial Services Analyst, are available on request from the press office.