1 in 4 of the most hard-up households use borrowing the most
Since last year the Bank of England has been doing it’s best to prevent any possibility of what caused the 2008 financial crisis from happening again, especially during this high-inflation, Brexit-transition period we are in. From this Bank of England campaign is a requirement for lenders to increase its protection from over-lending and the tightening of rules for lending to borrowers. Despite these steps (which the Bank of England appears to happy with in it’s last Financial Stability Report), it is still worried that unsecured borrowing is almost five times the proportion of pay growth, reports The Independent. This would put the total personal debt pile (personal loans and credit cards) at two hundred billion pounds.
This increased rate of borrowing is currently at it’s highest levels since the aforementioned financial crisis of 2008. However what I particularly worrying is the news that it is one in four of the least well-off households who are those that are most dependent on unsecured borrowing. Furthermore, this doesn’t appear to be the whole story - as if the most financially vulnerable of households being the most dependent on these types of loans, they appear to be staying in debt for longer.
Another interesting point mentioned by the report is that borrowers will still use unsecured borrowing even if they have the funds to pay for their item of desire in their savings. Perhaps there is a feeling of security in seeing numbers you own bank savings account, but ultimately the borrower will end up paying extra for that item.
Borrowing has been around for a long time, and there is little chance of it going anywhere away from us soon. The only effective way to get out of this dependency of debt to sustain lifestyle is to educate oneself and perhaps execute a little bit of restraint the next time that deal on a new car shows up.