Consumers grow wary of unsecured debt

by Gill Montia

Story link: Consumers grow wary of unsecured debt

Consumers are shying away from unsecured borrowing as they weigh up the risks of taking on new debt in the economic downturn.

The Finance and Leasing Association (FLA), which is the UK’s leading trade association for the consumer finance sectors, has reported that in February, the value of unsecured loans taken out fell 45% on a year earlier.

FLA members wrote only £316 million worth of unsecured loans during the month and attributed the decline to reluctance on the part of Britons to commit to longer-term repayments.

The body’s head of research and chief economist, Geraldine Kilkelly, comments: “Rising unemployment and low consumer confidence have led to a further drop in unsecured loan new business in the last two months. Our figures show that FLA members have written £660 million worth of new unsecured loan business in the first two months of 2009, compared with £1.1 billion in the same period last year.”

However, store instalment credit has continued to grow with an 8% rise in February.

According to the FLA, the trend reflects the availability of attractive deals on the High Street, such as deferred payment and interest-free credit.

The Association points out that purchases are usually for small amounts, suggesting that consumers are “more confident of being able to meet repayments on low cost loans”.