Credit, collections & insolvency news
Consumers borrowed just over £5,600 on average in personal loans over their lifetime, with a typical repayment period of three years, according to new research from Compare the Market.
The study shows almost a third of consumers (30%) have taken out two personal loans in their lifetime.
Almost half of respondents (47%) took out a personal loan between £2,000 and £10,000, with more than a quarter of people (28%) reporting they paid an interest rate between 1-5% and another quarter (25%) paid between 5-10%.
Nearly half of respondents (45%) felt stressed or worried about taking out their personal loan, with almost a third of people (31%) reporting they found it difficult to repay their monthly repayments. The rising cost of living and higher levels of inflation in recent years may have contributed to both the need to take out a loan, as well as contribute to why people struggle to repay. Over a quarter of people (27%) said the rising cost of living put them off borrowing because they couldn’t afford the repayments. However, 28% said they felt relieved when they received their loan.
The main reason people took out their most recent personal loan was for purchasing a car (33%) or to consolidate other debt (19%). In terms of life events that most often triggered people to seek a personal loan, one in three people (33%) applied for one when moving home or commencing home renovations. The top reasons are listed in the table below.
Most people chose to take out a personal loan over other forms of credit (e.g. credit card, buy-now-pay-later) due to their preference for a structured repayment plan (31%), the choice of more affordable rates (29%) and the faster access to the money (28%).
People found their personal loan either directly from the lender’s website (33%), through a price comparison website (29%) or through speaking to a lender in person (18%).
Andy Hancock, Chief Growth Officer at Compare the Market, said “Our research shows there are many reasons why people take out personal loans. You could use a loan to pay for home improvements, a wedding, or a car, for example. Loans can also have flexible terms and fixed interest rates and repayments. However, it is important not to borrow more than you can afford. Remember to always check the total cost of the loan and plan a budget to repay it. Some credit card providers also offer interest-free deals for an introductory period, making them a potentially cheaper option than a personal loan.
“It’s encouraging to see that a good proportion of people are using price comparison websites to find the right personal loan that suits their needs and circumstances. We’d encourage anyone looking to take out a personal loan to thoroughly research the available options on offer to ensure they find the most appropriate product for them.”
| Reasons for taking out a personal loan | Percentage (%) |
| To purchase a car | 33% |
| To consolidate other debt | 19% |
| To purchase home improvements (e.g. a new kitchen or bathroom) | 14% |
| To cover the everyday cost of living | 8% |
| To pay off my credit card bill | 6% |