Brits like getting into debt, but don’t get it

By Ryan Weeks on Thursday 28 September 2017

Digital BankingAlternative Lending

New report from alternative credit bureau underlines lack of financial maturity among the indebted.

Aire, an Artificial Intelligence (AI) powered credit reference agency, has published a new report on consumer debt. Amid growing concerns over the state of consumer credit conditions in the UK, the report identifies more signs of trouble.

Its findings suggest that almost a third of credit card and personal loan debt – worth up to £35bn – sits with people who have low financial maturity. Aire’s study found that only 59 per cent of UK adults show signs of financial maturity, after being subjected to a basic test. The report is hinged to interviews with a random sample of 2,095 adults, carried out by Populus.

Every second person in the UK currently holds some form of consumer credit, with 41 per cent of adults holding credit cards and another 13 per cent having taken out personal loans, according to the report.

Aire raised $5m in a series A investment round in July. Its clients include Zopa, the UK’s original peer-to-peer lender. Approved by the FCA, Aire’s machine learning-powered products are designed to help lenders cater to a broader range of customers, such as thin-file borrowers (who are typically younger) and self-employed or freelance workers.

Its new report also highlights the difficulties these sorts of people have accessing credit, due to their inability to satisfy traditional credit criteria. On average, freelancers have only increased their credit card and personal loan debt by £399 over the past two years, trailing the national average of £548. This is despite the fact 56 per cent of freelancers – not far off the national average – show signs of financial maturity.

In general, credit levels seem to be rising most swiftly among those in low-income employment. Those living in households with an annual income of £15,000-20,000 increased their debt levels by £700 on average over the past two years. 

The report also suggests that Brits are being encouraged to eat up more credit than they can afford. Up to £20bn of credit card and personal loan debt in the UK belongs to people who have had to draw on an authorised overdraft within the past 12 months. The Populus research shows that British people across almost all social grades expect to see their debts rise faster than their income over the next two years.

“This affordability squeeze means that even if some people manage to pay down their debt, they will have to make drastic cuts elsewhere and face financial distress in the process,” said Aire’s founder and CEO Aneesh Varma.

“This hurts the economy in multiple ways beyond the financial services. We can get ahead of this by enhancing credit assessments across the ecosystem by deepening our understanding of an applicant’s capacity and character. And for once, technology allows us to solve this. Everyone can be better off.”

Download the “Credit where credit is due: scoring the right balance in today’s economy” report here.

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