Affordable lending: Breaking down debt consolidation barriers

As the finance industry continues to evolve rapidly, one of the critical aspects that demands our attention is the role of affordability. Affordability is essential for fostering financial inclusion, economic stability, consumer protection, innovation, and social equity. 

Why? Put simply it ensures that people can manage new financial commitments without undue strain.  

However, we are finding some sections of society are struggling to access mainstream finance due to strict benchmarks set out in affordability assessments. In fact, our marketplace data shows around 40% of consumers are no longer receiving offers when they are looking for or needing financial assistance.  

 
Addressing this issue is crucial and one area that needs particular attention is debt consolidation. We conducted some research for Fair4All Finance late last year and found that 41 million UK consumers have credit products, with 83% (34 million) of these involving revolving debt that isn’t being managed in the most efficient way.  

Debt consolidation is also the most common reason people search for loans on Experian’s Marketplace. However, many simply struggle to qualify and are least likely to see an offer they are eligible for.  

The impact of this is that it keeps people in a debt cycle. Despite proactively seeking a solution, people find themselves stuck due to a limited supply, leading to stress and confusion about the options available to them.   

There are, of course, many factors to consider when it comes to what impacts the affordability assessment of an individual. However, when you dig deeper into why people are struggling to qualify for debt consolidation products specifically, one of the clear structural issues is double counting.   

Double counting is essentially an inaccurate representation of the total debt amount someone owes. For instance, if a customer has £10,000 of existing debt and searches for a £10,000 loan, their affordability is assessed based on £20,000.  

This significant difference can greatly affect their chances of qualifying for the loan, as it essentially doubles their calculated debt.  

Interestingly, research conducted for Credit Awareness Week showed that one in four financial services professionals want to overcome the issue of double counting during the debt consolidation process. Solving the challenge requires a series of changes and requires collaboration between the industry, government, and regulators.   

However, progress can be made by focusing on a specific problem as well as how data and technology can play a role. When you look at the issue of debt consolidation, innovations in data verification, technology, automation, and open banking are key.  

At a base level, we need processes and tools to ensure that data is accurate, consistent, and reliable. This will reduce the risk of errors in affordability assessments.  

In addition, advanced technology and automation will also be able to streamline debt consolidation processes. Automation can help with real-time updates and checks, ensuring that existing debts are accurately accounted for.  

With innovation as part of our culture we wanted to look into the issue. That is why we have recently integrated ReFi, a debt consolidation technology from Paylink Solutions, into Experian’s Marketplace.  

ReFi sits in the lender journey and directly settles the customer’s existing debt on behalf of the lender. This means that the individual doesn’t receive the loan.  

As a result, lenders are able to assess an individual’s affordability without taking the next debt into account.  

Ultimately finding solutions to tackle the challenges of access to finance, affordability and debt consolidation is critical. For individuals, it means a more accurate assessment of their financial situation, increasing their chances of qualifying for a consolidation loan and breaking free from a cycle of debt.  

For lenders, it provides more accurate and efficient services, offering a valuable opportunity to reach new customers while helping them manage their finances.  

What is essential for the industry to prioritise is innovations in data and technology as a first proactive step towards realising these benefits and ensuring a more equitable and effective financial system for all.