>
More and more Britons are relying on unsecured loans to stay afloat amid rising costs of living.
More than 12 million people are now borrowing money for food or essential bills, and half of them are doing so for the first time in their lives, according to analysis from The Money and Pensions Service.
It found that nearly a quarter of Britons have relied on credit or money from family and friends to buy food in the past three months, while a similar number did so for electricity and gas.
About half of them said they had never had to do this before.
Borrowing millions to pay for food, utility bills and rent or mortgage payments, half of them doing so for the first time, according to The Money and Pensions Service
>> Discover the best credit cards for debt settlement
Nearly one in five said they depended on borrowing to pay off the costs of their rent or mortgage, medical expenses such as prescriptions and dental treatment, and other forms of credit.
Again, about half of those surveyed said they had never had to do this in the past.
This is consistent with separate research by credit scoring app, Credit Karma, which found that two-thirds of households this year resorted to credit cards, loans and overdrafts to cover Christmas costs.
It said one in five Britons were in debt for the first time last year due to the cost-of-living crisis, as the country’s average credit balance stood at just over £900.
In the past 12 months, around a third of Britons said they need to change their lifestyle to make it more affordable, and around a third said their income isn’t going as far as it used to.
The two surveys appear to be in line with what is being seen across the banking industry.
Vanquis Bank, which issues credit cards to Britons with limited or uneven credit histories, says demand for its services is rising sharply.
Fiona Anderson, general manager of cards at Vanquis says: “At Vanquis, we have seen a significant 42 percent increase in annual credit card applications between 2021 and 2022, indicating that people are borrowing to cover everyday living expenses.”
One in five Britons went into debt for the first time last year due to the cost-of-living crisis, according to Credit Karma, with the country’s average credit balance over £900
Meanwhile, Starling Bank has found that nearly 15 percent of people under the age of 35 are using credit cards to help them through the cost-of-living crisis.
Helen Bierton, chief banking officer at Starling Bank, said: ‘Our research has shown that people of all ages are being affected by the cost of living crisis, but younger adults have been hardest hit and are twice as likely to take out credit. use than people over 55 years of age. .
‘As a result, the younger group also postpones life milestones, such as buying a house or starting a family.’
The rising level of borrowing coincides with higher household spending on basic necessities, from groceries to heating and electricity.
One in 20 Britons now faces unpayable loan payments, according to Credit Karma, and this could worsen as the cost of living continues to rise across the board, while credit card interest rates have been high for 16 years.
Akansha Nath, Head of Partnerships at Credit Karma UK, said: ‘Borrowing has become a reality for many households trying to keep up with rising prices over the past year.
“As our research shows, this was inevitable, even for those who made a concerted effort to cut back and reduce wherever possible.
This can understandably be worrying and disheartening as spending will continue to rise in 2023.
For those looking to borrow, or facing large repayments, I recommend keeping an eye on competitive rates, spending only what you can afford to pay off, and making sure your credit score is as strong as possible. is, which can ultimately reduce the interest you ultimately pay back.”
>> Become debt free in 2023: five steps to pay off what you owe
What about buy now, pay later?
The cost of living crisis is also changing shopping behavior and encouraging the use of buy now, pay later (BNPL) schemes.
BNPL allows shoppers to spread the cost of store purchases over several weeks or months, often without additional interest.
More than 4 million people used BNPL by 2024, according to the latest study from Equifax, one of the UK’s three largest credit reference agencies.
It found that more than a third of UK shoppers have now used BNPL services to spread the cost of purchases, and thousands chose to use BNPL for the first time during the 2022 holiday season.
The survey also found that one in three Britons have now used BNPL services, up from 26 per cent in November 2021.
This suggests that about 4.1 million people chose to use the payment method for the first time in 2022.
On the rise: The survey found that 34% of Britons have now used BNPL services, up from 26% in November 2021
Jayadeep Nair, chief product and marketing officer at Equifax UK, said: “Buy now, pay later has become a pervasive part of the shopping experience.
“As with any form of credit, when customers use it responsibly, it can be a great budgeting tool to help manage extra spending during the holiday season.
Because BNPL is a form of credit, it now appears in consumer credit reports, which can be viewed by lenders.
This can affect credit decisions, so BNPL should be used with this in mind. Shoppers should be wary of using BNPL to overextend themselves, especially if spending is driven by broader social pressures.”
There is also evidence that BNPL is increasingly being used for lower value everyday items, which may be a sign of irresponsible use.
There is evidence that BNPL is increasingly being used for lower value everyday items, which may be a sign of irresponsible use
One in eight BNPL users have now used it to pay for a meal or takeout, and a similar number have used it to spread the cost of everyday items such as groceries or toiletries.
The BNPL industry has requested investigations from the Treasury and FCA this year, but Equifax says it has yet to see evidence of a significant increase in the average amount borrowed per person.
Nair adds: There is little in our research to suggest that BNPL is doing more harm than good for UK consumers, but with over four million people using it for the first time this year it is important that new users are aware of the risks of mismanagement of their repayments.’
“Nearly half of users report missing at least one payment in the past, and half of this population is reporting additional charges as a result.
“Consumers will find missed BNPL payments in their credit reports next year, so it’s vital that anyone using it sees it for the credit product it is.”
Some links in this article may be affiliate links. If you click on it, we may earn a small commission. That helps us fund This Is Money and use it for free. We do not write articles to promote products. We do not allow any commercial relationship to compromise our editorial independence.