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Lending industry must be alert to poor consumer outcomes as millions still not shopping around for credit

by jcp
Editorial & Advertiser disclosure
  • Fifteen million UK borrowers have a ‘poor understanding’ of how to compare loan costs 40% who took out personal loans did not compare the rate available with other  providers, and 23% did not know the “rough” APR on the loan they had taken out Freedom Finance matches people to loans they are eligible for at the best possible  rates  

Millions of people are failing to compare lending products from at least two providers and risk not getting  the best deal available to them, according to analysis of FCA data from Freedom Finance, one of the UKs  leading digital lending marketplaces.

The data shows a widespread lack of shopping around across most loan products, and a low-level  understanding of terms like APR that hinders the ability to compare products accurately.

Proportion of people who did not compare products from two  

or more different providers by looking at the product features or prices

Car loan Personal loan Credit card Pay day Home collect

62% 40% 42% 70% 87%

Four in 10 consumers said that they did not compare personal loan products, with a slight increase among  those getting a credit card. Of those accessing car loans this rises to nearly two-thirds (62%) and even  more worryingly, seven in 10 did not compare payday loans from different providers.

Just over a third (35%) of the 44.4 million who took out loans last year said they had a ‘poor  understanding’ of how APR works – this is the figure lenders must include when advertising products to  ensure borrowers can compare the cost of credit between different loan products and providers.

Moreover, around a third (31%) of credit card borrowers and a quarter (23%) of people taking out personal  loans admitted that they did not know the APR when they took debt out. At the same time, almost half, 40% did not try to find a cheaper loan or credit card from a different provider.

Younger borrowers in particular struggle with understanding the cost of loans, as 42% of Millenials (born 1981 -2000) and 73% of Gen Z (born 2001 onward) were found to have a poor understanding of APR.

APRs on loans for £1000 currently range between 9.8% and 13.5%, meaning that someone opting for the  more expensive loan could pay over a third more in interest. With the most common loan lengths around  3-5 years, the extra cost of expensive debt could amount to £100s.

Loan marketplace platforms, like Freedom Finance, help customers find the cheapest possible loans  available to them, and it’s extensive online guides will help borrowers understand how to make borrowing  decisions.

In the past 12 months, Freedom Finance has helped millions navigate finance and get help to access  loans with some of the UK’s largest lenders through its award winning financial marketplace.

David Hendry, Chief Marketing Officer at Freedom Finance, said the findings were a red flag for a lending industry that should be on high-alert to the risk of poor consumer outcomes caused by failing to shop around or understanding the differences between product terms.

“Credit plays a vital role for many people and when used appropriately can improve financial wellbeing by  minimising expensive, drawn-out debt,” he said. “However, paying more in interest and fees than is  necessary contributes to the risk of ‘over-indebtedness’ and can lead people to situations where they struggle to pay off their credit commitments.

“The industry actively needs to be monitoring these issues and continue to drive up consumer awareness  of the benefits of using digital tools to shop around and make sense of what they are eligible for.

“Otherwise, the danger is a two-tier system emerges where those able to navigate the system obtain the  best deals, while others are left overwhelmed by choice and exposed to the risk of poor outcomes.”

For more information: 

Temple Bar Advisory 

Alex Child-Villiers // William Barker // Sam Livingstone

Tel: 020 7183 1190

Email: freedomfinance@templebaradvisory.com

Notes to Editor

About the research  

1 – FCA, Financial Lives survey: https://www.fca.org.uk/financial-lives-survey/resources-library About Freedom Finance 

Freedom Finance is a leading UK consumer finance marketplace providing unsecured personal loans, credit  cards, mortgages and other financial products. The company partners with over 100 of the UK’s leading lenders  and leading service providers, helping consumers navigate money with it’s proprietary matching platform.

Proprietary technology enables Freedom Finance to tailor products specifically for customers to give them  clarity, not just choice, by providing them only with the products they qualify for. The Group also delivers  consumer financial services for high street brands like Argos, Asda, The Co-Op Bank, RAC, Very Group and  many more.

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