UK consumers turn to borrowing amidst tighter loan criteria


Amidst an escalating cost-of-living crisis, many UK citizens are relying on borrowing to bridge their financial gaps.

A recent study by open banking leader, Tink, reveals that a growing number of Brits, nearly 29%, are running out of money before month-end. As a solution, many are resorting to credit (25%), instalment or delayed payment methods (23%), and loans (16%) to manage essential expenses.

However, there’s an apparent tension between borrowers’ needs and lenders’ responsiveness. Tink’s concurrent survey of 200 UK lenders, encompassing major banks, highlights a financial pinch on consumers. Despite the increasing reliance on credit, qualifying for loans has become notably challenging. An alarming 58% of these lenders report a surge in rejected applications because applicants fail to satisfy the affordability tests.

This tightening credit environment is driving some consumers to take bigger risks. Up to 12% have sought alternative lenders upon loan rejection, an estimated 9% have inflated their income in applications, 9% have downplayed their monthly expenses when seeking finance, 8% have turned to unregulated lenders after facing rejections and 35% of lenders have observed a spike in tampered application documents.

Tink’s UK Head of Banking and Lending, Tasha Chouhan, emphasised, “With traditional credit checks posing significant barriers, individuals desperately needing financial aid are taking drastic steps. Adopting data-driven lending can help lenders offer broader credit access judiciously, safeguarding vulnerable borrowers from further financial strain.”

In light of this, 82% of lenders now consider robust affordability checks crucial, and 77% see a pressing need to upgrade their risk evaluation systems for a true reflection of consumers’ financial situations.

Data-driven risk models, which provide a comprehensive view of transaction data with the user’s consent, are gaining traction. They enable a rounded analysis of income and spending habits, fostering financial inclusivity while dismantling lending obstacles, especially for those with varied income sources. A significant 84% of lenders recognise the value of these models, with 68% believing in third-party collaborations to enhance lending systems.

Presently, about 43% of lenders are amplifying their investments in fintech collaborations for enhanced digital affordability checks during credit evaluations, and 36% are strengthening their ties with open banking.

Chouhan further added, “Faced with budget constraints and scanty internal resources, a partnership with a credible fintech is a cost-effective solution for lenders. By integrating data-driven technologies, they not only protect their interests and their clients today but also ensure future resilience. This trend is evident across Europe. Our assistance has enabled lenders to make swifter, wiser decisions on over 7m consumer loan applications in the past year, and we anticipate a twofold rise in the coming six months.”

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