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Borrowing Trends In The UK 2015

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Borrowing trends are inherently interesting and provide us with invaluable insights into the way people spend their money and the monies of others, like banks and lenders. There are times when borrowing gets a bad rap, which is understandable when unforeseen forces seemingly conspire against individuals and impede their ability to repay what they owe, but borrowing is a necessity and that isn’t about to change any time soon. Just ask any economist worth their salt.

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Borrowing on the rise but it isn’t all bad

Alarm bells have been ringing again this year as consumer helplines have raised concerns about the current level of debt in the UK after it reached the highest level of new debt in seven years. Whilst this sounds alarming, it must be said that a healthy percentage of those incurring new debt will repay what they owe on time and not invite avoidable problems, and that countless people in many industries, especially the retail and service sectors, are heavily reliant upon consumer borrowing to purchase the products and pay for the services that they need.

Also, don’t forget that our economy is very much service based and that jobs in the service sector make up over 80 percent of our economic output and employment. In England, the service sector accounts for 83.7 percent of all workforce jobs, and Scotland, Wales and Northern Ireland all exhibit similar trends. Basically, the service sector is important to us all and it must be remembered that a high percentage of people use credit cards and other forms of borrowing to pay for services offered.   

Credit card spending on the rise, but is it really a problem?

The UK credit card industry is worth about £150bn and is to be investigated this month by the Financial Conduct Authority after consumer watchdog organisations accused lenders of aggressive marketing tactics which they believe is to blame for the sharp rise in unsecured lending. The Bank of England has had plenty to say on the subject, and recently said that unsecured lending has increased at its most rapid rate since October 2005 and was up 6.9 percent on the same period last year.

But is this really the problem consumer watchdog organisations are making it out to be? After all, there are actually many benefits to using a credit card on a regular basis, provided of course that consumers use their plastic wisely. You may be surprised by some of the following benefits, but don’t forget that if you want to apply for a mortgage to buy a home, or take out a personal loan to buy a car, that you need a healthy credit rating and what better way to earn a credit rating than by using your credit card to pay for small purchases and repaying what you owe on time?

Here are some of the many benefits that you stand to gain by using your credit card regularly, albeit in a responsible manner. Your credit card can be a good friend, but it can also prove to be a formidable foe, one not easily defeated.

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Rewards schemes

There are many rewards schemes that you can take advantage of at the moment, with the top ones paying you as much as £3 for every £100 spent. You must of course understand that they do this so that they can hit you with high interest rates on what you borrow, but if you make the effort to understand how your rewards scheme works and time your repayments well, you can definitely come out ahead.

Insurance

Something that many consumers are unaware of is that when they use their credit card to book holidays, buy goods and pay for services, that they are often invoking consumer protections like insurance and extended product warranties. For example, when you hire a car for your next holiday you could actually be covered for car hire insurance by your credit card company. This trend also sees consumers accessing extended product warranties that may exceed the warranties offered by the manufacturer. 

Safety

You are at less risk of fraud when you use your credit card as opposed to your debit card. Should your debit card be used fraudulently, and the money disappear instantly from your bank account, it can trigger a number of nasty knock-on effects, and could also negatively affect the credit rating that you have worked hard to build. In contrast, if your credit card was used fraudulently, notify your bank and they’ll investigate and resolve the matter because it’s their money that was taken, not yours.

Whilst there are a number of benefits to using plastic, you must always use your cards wisely. Don’t, and your spending behaviour will come back to haunt you.

Now is the time to borrow

“Relatively high consumer confidence means people have become more prepared to borrow in recent months,” says Howard Archer, IHS Economics’ chief UK economist. And he’s correct, as many UK consumers feel safe in borrowing this year, a notable sign that many households have finally recovered from the global financial crisis and feel confident about their ability to borrow and repay what they have been loaned on time. But it isn’t only consumer confidence that explains the increase in unsecured lending, as personal loan rates have dropped significantly over the past two years.

Just two years ago, a £5,000 personal loan had an interest rate of 7 percent, though this year, 2015, borrowers can expect an interest rate of just 4.9 percent. This is definitely a good sign for consumers who feel confident about their ability to meet the repayment obligations of a competitive unsecured personal loan punctually, and there are many lenders vying for their borrowing attentions.

With so many lenders to choose from, borrowers definitely need to keep an eye out for the best interest rates, as well as the most competitive terms and conditions. Consequently, as long as you understand what you need to look for in a short term, unsecured personal loan, now is definitely the time to borrow.

About the author

Peter Davis Peter Davis is a Marketing Analyst at PaydayLoan123 specialising in financial products. Peter writes most of our articles as he stays up to date with the latest information. He enjoys most sports, particularly playing football and watching his favourite football team. Peter really like his food too as we have all witnessed first hand!

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