Debt consolidation spurs consumer borrowing

The analysis reveals 41% of all people who searched for a loan through Freedom Finance’s platform in April 2023 were looking to consolidate debt. The second most common reason was home improvements, coming in at 25%.

As interest rates on overdrafts and credit cards have increased rapidly since the middle of last year, so have the number of people looking to consolidate more expensive, ongoing debt into lower-cost, fixed-term personal loans.

Freedom Finance’s latest Credit Monitor revealed that credit card rates are now at their highest level since December 1997.

Demand for debt consolidation has, in turn, sparked an increase in demand for personal loans, which has bounced back since the market disruption seen last autumn. This demand has led to more consumers using digital platforms such as Freedom Finance - which has experienced a fifty percent increase in demand on its own platform compared to this point last year – to find loan products.

As well as increasing overall demand on the platform, Freedom Finance says that the trend to consolidate household debt has meant that more wealthy borrowers are also using the platform as the average salary of applicants has increased steadily over the past 12 months.

Andrew Fisher, chief growth officer at Freedom Finance said that tightening credit conditions are prompting more people to use soft credit search technology to shop around competitive rates.

“We have seen a clear shift in the market of the past few months where all types of borrowers are moving toward using personal loans to pay off other more expensive forms of debt, such as credit cards and overdrafts,” he said.

“The changing conditions as rates have risen have also seen people look to borrow in new ways. We are seeing more people and different demographics coming onto our platform to look for the most appropriate credit products available to them.”