How Has COVID-19 Impacted Personal Loans in the UK?
Short term lenders across the UK have front-row seats in witnessing what COVID-19 is doing to personal lending on a global scale. While a world-wide lockdown is having devastating effects on economies the world over, in the UK specifically, we are seeing a change in the way personal loans are being supplied and accessed. There is no denying that COVID-19 has had a negative impact on personal finance; lending included.
It comes as no real surprise that the COVID-19 pandemic is having a detrimental effect on the consumer credit market in the United Kingdom – and the rest of the world for that matter. After scrutinising the personal loans market in the country, it becomes apparent that three new virus-related trends are currently underway:
- The demand for personal loans in the UK has significantly reduced by up to 40%.
- The supply of credit and loans offered by a wide array of lenders has become far less available. Some lenders simply aren’t offering loans at this time. The Guardian released an article stating that some lenders fear that low-income borrowers just won’t be able to repay their loans.
- Some lenders have paused lending while others have made their approval criterion stricter, which in turn makes it difficult for regular people to acquire funds (even short-term bridging funds).
COVID-19 Related Reasons for Reduced Demand & Supply of Personal Loans
You might wonder why the personal loans market has experienced such a negative impact in recent weeks. It all really comes to the nationwide lockdown and how that has impacted on people’s day to day lives. While a lockdown is necessary to break the chain of the Coronavirus’ transmission, it seems to be breaking the financial chain in each and every Britons life.
For starters, loan applicants no longer have the job security they once enjoyed and may even be earning less than their originally agreed wage, while lockdown is underway. This immediately puts an individual in a poor financial position to actually pay back a loan instalment each month. Thus, personal loan and credit demands are on the decline at a time when people need the extra money the most.
Another good reason for reduced demand and supply of loans is that economic uncertainty plays on the psychology of the consumer market, making individuals less likely to spend money or get tied into lengthy credit or loan contracts. Of course, there is also the fact that most of the things consumers spend loans on (home renovations, holidays, cars) are no longer readily available and so spending on such things has stopped somewhat abruptly.
On the topic of lenders tightening their restrictions and making their loan approval criteria stricter; it all comes down to risk. Lenders are now changing the way they approve a loan, based on how “at risk” the applicant is in terms of job security. This unfortunately means that many self-employed individuals and those who work in high-risk sectors such as travel, hospitality, and healthcare (frontline workers) are finding it extremely difficult to get much-needed loans and funding. In a time where these sectors need the most support, it appears as if the support has certainly “dried up”.
Likely Upcoming Changes to Personal Lending in the UK
As the lockdown is set to be extended by a few more weeks, the general consumer base is bound to be looking for bridging cash and short-term loans to get them through these uncertain and minimal-income times. However, more changes are expected in the personal lending market and these may just be the changes that make it even more difficult for individuals to get the loans they need. It is expected that lenders will avoid extending loans to consumers who don’t have a “secure job” in terms of COVID-19 risk.
While governments and industry regulators are advising freezes on loan and credit repayments, interest-free overdrafts, and limits on fees that lenders can charge on new loans, it looks like the personal loans industry in the UK is set for a few more changes along the way that will add the proverbial insult to injury. Of course, not all short term or unsecured lenders will be adopting a change in their loan model and so it is really up to the consumer to seek out a lender offering the same old guidelines, limitations, and requirements as before.
Unsecured Short-Term Loans in a Time of COVID-19
Consumers seeking out short term loans that are unsecured and without bias or prejudice attached need only seek out a loan at Multi Month Loans. While the personal loans industry is certainly going through some stringent changes, it is obvious that a handful of online lenders are taking the plight of individuals into consideration and carry on running.
As tough and uncertain economic times loom, consumers are encouraged to take out loans responsibly and also advised to seek out their short term lender with considerable care.
Remember, if you’re unsure about loans or if you’re struggling with debt, check out the Money Advice Service or get in contact with Citizen’s Advice for any queries you may have or for any financial problems you may be facing.