In the last six months, a quarter (24%) of under 35s have applied for an overdraft and 19% have applied for a payday loan
22% and 29% of those with personal loans and payday loans use these products to manage everyday expenses
With Consumer Duty looming, banks and other lenders will need to ensure customers are on the most suitable products for their circumstances
Open Finance powered Decisioning tools can help lenders spot vulnerable customers early, and provide better financial support to those struggling
The cost of living is causing more young people to become dependent on the use of credit to manage their finances, warns Moneyhub Decisioning, the Open Finance data platform that enables organisations to access real-time affordability, eligibility, suitability and vulnerability checks.
Moneyhub Decisioning’s new research has found that in the last six months, a quarter (24%) of people under the age of 35 have applied for an overdraft, of which 21% had a pre-existing overdraft.
Additionally, 19% of young people have applied for a personal loan, with 12% applying successfully in the last six months. More concerningly, a further 19% of under 35s have applied for a payday loan within this time.
This is particularly worrying as these products are being used to cover the costs of everyday spending and expenses, such as rent or mortgages, petrol and groceries. Of those with a personal loan, 22% are using the product to manage everyday expenses and a third (29%) with a payday loan.
With average rent increasing 5.7% year on year (Zoopla) and inflation remaining high at 8.7% (ONS), it's no wonder young people are feeling the pinch and turning to credit for support. However, while credit can play a positive role in money management, an uptick in people using credit for essential everyday expenses can be a cause for concern.
And with the Bank of England reporting a rise in defaults from households as part of its Credit Conditions Survey, there are concerns that more young people could be putting themselves at financial risk in order to stay afloat in the short-term.
With the first major Consumer Duty deadline looming, banks and other lenders will be under increasing pressure to ensure that their customers are on the right products for their circumstances. For example, someone who is struggling to make ends meet and afford their everyday expenses would not ordinarily be considered a candidate for a personal loan, particularly with interest rates, and therefore monthly repayments, as high as they currently are. With the Financial Ombudsman warning that credit cards were the second most complained about product in the last quarter, there’s an opportunity for lenders to help their customers understand the product they are applying for and ensure it is suitable for their financial situation.
Indeed, as financial pressures increase, lenders must ensure they are servicing their customers, particularly those who would be classed as vulnerable, in the most responsible way possible. This means ensuring that a product or service is affordable now, and into the customer’s future. Moneyhubs research found that one quarter of the UK population thought that they would be offered more suitable products by banks and lenders if their finances were better understood by the organisation.
Open Finance powered Decisioning tools can support lenders with their Consumer Duty obligations and ensure they understand the full nature of their customer’s financial situation to determine whether the product applied for is beneficial, or if there is a more appropriate alternative.
Suzanne Homewood, Managing Director at Moneyhub says: “Credit is a lifeline for many, but when it is being used to cover everyday expenses and make up for a shortfall in income, it is often a sign of a much bigger issue, and potential future vulnerability that isn't today being taken into consideration at point of application.
“Open Finance based affordability and decisioning tools mean that lenders across the board can ensure that loans are affordable today, and also take the opportunity to support the longer term education and confidence of the younger generation when taking out a loan. Offering ongoing affordability checks could help ensure the loan is still appropriate, whilst providing options should things get worse, before they spiral into debt and fall behind with repayments.
Responsible lending isn't just what happens at the beginning of a loan, it's what happens throughout the lifetime of the loan. With 34% of the UK population stating that they would be happy to share their financial situation with a bank or a lender in order to get more suitable products, Moneyhub is championing the transparent and informative use of personal finance data to help everyone make better decisions.”
Contacts
Kirsten Ward
Marketing Director, Moneyhub
kirsten.ward@moneyhub.com
M: +44 7782 324 672
Eleanor Ross
Account Director, Teamspirit (Moneyhub PR Agency)
Ross@teamspirit.uk.com
M: +44 7393 758 446
About Moneyhub
Moneyhub is a data, intelligence, and payments company which develops ISO 27001 certified software for Open Banking, Open Finance, and Open Data applications. Its FCA-regulated Open Data platform enables companies to quickly and easily transform data into personalised digital experiences and initiate payments. Its APIs and fully customisable platform provide data aggregation, insights, notification nudges, and payment systems. As a result, clients have the consent-driven data and analytics they need to create super-personalised offers, products, and services. Hundreds of organisations, spanning finance to media and retail, rely on Moneyhub’s award-winning technology.
For more information, please visit www.moneyhub.com.