Debt consolidation remains the top reason that people apply for a loan, with 47% of approved loans being used to bring consumers’ debts together as borrowers take charge of their finances, Freedom Finance has revealed.
After debt consolidation, the most popular reasons for applying for a loan were making home improvements (24%), buying a car (17%), paying for holidays and weddings (6%).
Freedom Finance analysed 34,578 loan offers totalling a value of £401,545,898 between January 2015 and February 2016 to identify the qualities that define a successful loan applicant, with the average loan application totalling £11,612.
The borrowers most likely to be offered headline loan rates were found to be those between 28-37 years old, earning an average of £29,279 per year, with the top three most likely applicants working as managers, nurses, and drivers.
Outside of London, which accounted for 9.8% of loan applications, the cities with borrowers most likely to be offered a loan were Birmingham, Manchester, Glasgow and Liverpool.
Jeff Poole, managing director of Freedom Consumer Finance, said: “These figures are a clear indication of the important role that credit plays in the UK economy, with several thousand people each year taking out a loan in order to fund the purchase of a car, improve their homes or most distinctly, to streamline their finances.
“Many view debt consolidation as one of the best and most practical ways to handle their monthly loan repayments which can often get confusing when dealing with various loans from multiple lenders. By consolidating debts it enables consumers to have one single repayment. As consumers become more financially savvy, it is really positive to see many of them take control of their budgeting which in turn can reduce overall repayments and improve their credit rating.
“When it comes to other unsecured loans such as holidays and home improvements, consumers need to be mindful that many of the top rates advertised for their chosen loan are only available to those with perfect credit scores, but in reality, there are very few ‘perfect borrowers’. A better understanding of lenders’ criteria should help to give applicants a clearer picture of what type of loan they’re likely to be accepted for and at what rate.
“Borrowers also need to be made aware of the risks associated with shopping around online for loans, as these searches often create a digital footprint that can have a negative impact on their credit scores. Engaging with companies that use ‘soft search’ technology is a far better way to shop for loans safely, since they do not store this type of information. As a result, borrowers are able to get the best rate possible for their particular situation, both now and in the future.”