Loan applications surge as cost-of-living crisis takes its toll

The cost-of-living crisis continues to spiral, and it's predicted that the negative impact on Brits is likely to last until the second half of 2023. When we look at why the nation is in such trouble, it's not just one disaster; a rise in inflation is at fault, in addition to the economic impact of the COVID-19 pandemic, post-Brexit trade, and the Russian invasion of Ukraine.

In November and December 2022, a staggering 92 per cent of adults reported an increase in their cost of living. This includes higher prices for basic necessities such as food, housing, and healthcare. It's certainly a worrying time for many, so much so that an increasing number of people across Great Britain are relying on loans and finance options to keep their heads above water.

UK motor finance company, First Response Finance, has looked at the number of people applying for loans since the cost-of-living crisis, and where this borrowed money is being spent.

The most common uses of loans

In the UK, a variety of reasons can cause someone to apply for a loan, and there are also several goods that can be bought via finance. Purchasing something with finance (such as a car, kitchen appliance, or laptop) is different from a loan in the sense that the money you're borrowing isn't sent to your bank account; it goes directly to the retailer, and (typically) you pay it back on a monthly basis.

According to data released by Experian, the number of personal loan accounts increased by 16% to 25.1 million in 2022. The cost-of-living crisis is putting untold pressure on people, and many are finding that they have no choice but to seek financial assistance.

Paying off credit card debt

As we're plunged deeper into a financial emergency, more people are racking up credit card debts to settle important outgoing payments that they're struggling to keep up with, such as rent and utility bills. In November 2022, debt charities warned of a "new wave of people" being forced into debt because of ever-increasing rent prices and higher interest rates.

If your credit card bill has skyrocketed beyond control, you might consider taking out a personal loan to pay the debt off, taking advantage of the fact that the average interest rates are usually lower on loans.

Vehicles

Needing a new vehicle during a national economic crisis is less than ideal. Quite simply, most people cannot afford to pay for a motor outright, which is where the power of finance businesses is really highlighted. With many Brits needing to keep a close eye on their bank balance, these companies become a fantastic choice because customers can pay for the car over a period of time.

Jonathan Such, Head of Sales at First Response Finance, has seen first-hand the dramatic increase in people applying for car, van, and motorbike finance since the cost-of-living crisis worsened. Jonathan said: "From July 2021 to July 2022, applications for vehicle finance increased by a whopping 66 per cent.

"It's times like this where we feel so fortunate to be able to offer the kind of service that we do. For many people, a vehicle isn't a luxury, it's a necessity, but when you're having to decide between heating and eating, a new car or motorbike doesn't even get a look in. Our finance option gives people that safety net, and unlike most car finance companies, First Response Finance doesn't charge any fees."

Emergency expenses

An expensive emergency isn't ideal at the best of times, let alone during a cost-of-living plight. Taking out a loan to cover the cost of a personal crisis, such as a crucial vehicle repair or home repair, is common across Great Britain, and even more so during these times of economic uncertainty.

When savings are dwindling at an alarming rate or tied up elsewhere, taking out a loan is a good way to solve any pressing issues that flaunt a high price tag. The last thing you need during these tough times is a broken roof, a car that won't start, or a faulty boiler.

Debt is certainly on the rise since the economic crisis

Overall, it's clear that Brits are finding themselves in more and more debt as a result of the cost-of-living crisis. In fact, at the end of June 2022, people in the UK collectively owed more than £1.8 trillion. What's even more shocking is that this is an increase of £62.5 billion since June 2021, which works out to an extra £1,181 per adult across the year.

There's advice online to guide people through these ongoing issues. Tips include maximising government loans and grants, tackling spending triggers, and making a fool-proof budget plan. You can also get professional help from Citizens Advice, including how to start dealing with your debts, any benefits you might be eligible for, and funds that could help you afford essentials like food and bills.

Please remember that you are not alone in this! While it is a frightening time for many, the cost of living will eventually go down... we just need to hold on and ride the storm.

How has the cost-of-living crisis impacted car ownership, and what can motorists do to reduce worries? Find out here! 👈