Sharp decline in debt consolidation suggests borrowers paying off debts

Debt consolidation is now a much less significant reason for people taking out personal loans than it was two years ago, according to new figures from Sainsbury’s Finance.

The supermarket bank, which offers a personal loan rates of 7.9% APR typical for loans of between £7,500 and £14,999 for Sainsbury’s shoppers, says this may be an indication that many borrowers are choosing to pay off their debts rather than consolidate them.

In 2007, one pound in every 13 taken out by Sainsbury’s Finance’s personal loans customers was solely for debt consolidation purposes. In 2008 this dropped to one pound in every 19, and in 2009 this fell to one pound in every 50. In contrast, large purchases such as home improvements and cars are becoming much more common reasons for people to take out a personal loan.

The supermarket bank says that a decline in debt consolidation may be an indication that the difficult economic climate has led debt-conscious consumers to try and pay off their debts, an analysis that backs up Bank of England statistics which show that for five consecutive months in the latter half of 2009, repayments outstripped new unsecured consumer credit.

Steven Baillie, Head of Loans at Sainsbury’s Finance, said:

“Debt consolidation has always been one of the most common reasons for people to take out personal loans, but while more and more people are taking out a loan for other reasons, there has been a sharp decline in the proportion of people borrowing money in order to consolidate their debts. This suggests that more and more people are choosing to repay their debts rather than consolidate them.

“However, for those with multiple debts, consolidation is still one way to reduce their monthly outgoings as long as they look around for the best rates on the market, which could save them a considerable amount in repayments.”

According to Sainsbury’s Finance, the majority of personal loans are currently taken out for more domestic reasons such as home improvements and buying cars, but there is still a significant number which are used to fund more unusual expenditure such as cosmetic surgery.

Source:  myintroducer.com