The bad habits of consumer borrowing

The growing levels of British debt in the last decade seem to have continued unabated into 2007. As of April, the official debt facts and figures collected by CreditAction cite total UK personal debt as £1325 billion - that's a growth rate of 10.4 per cent on the previous 12 months. Of this, a whopping £1112 billion was accounted to secured loans, a rise of 11.4 per cent since April 2006, while the remaining £213 billion was attributed to consumer credit lending.

According to the credit agency, Britain's personal debt is increasing by an average of £1 million every four minutes. But while this image of the profligate British borrower is becoming increasingly typical, how often exactly do people take out loans - and for what purposes? Somewhat paradoxically, a recent survey conducted by Alliance and Leicester has found that the majority of consumers in the UK don't actually borrow money unless they really need to, and make a conscious effort to refrain from getting into debt.

The survey found that 62 per cent of UK financial consumers take out a loan only when necessary. Out of those consumers that did rely on borrowing, 50 per cent were more considered with their loan or other source of credit being convenient rather than the importance of getting good value for money. For instance, 40 per cent of those classified as borrowers claimed to have taken out a car loan at a dealership because it was an easier option, even though the loan was more expensive that other options.

In fact, the research suggested that only a small number of borrowers were financially educated enough to realise the value of shopping around for a loan before making a decision and, as a result, many consumers were missing out on the best deals and rates. Additionally, many of those surveyed claimed to only borrow in order to finance the cost of larger purchases, such as a car or a holiday.

A spokesperson from Alliance and Leicester commented:

"The research highlights how, despite good intentions, many people don't give careful thought to how they borrow. Anyone who is paying over the odds for large purchases on costly store cards or expensive dealer finance should look at how much they could save by moving to a low-rate personal loan."

However, personal loans have also received a lot of press recently as the four hikes in the Bank of England interest rate that have occurred since August 2006 have forced many of these loans out of the best buy tables. Nevertheless, it's still possible to search for the best loans and loan rates available via consumer comparison sites on the web, so borrowers will be able to make the best financial decision possible in order to reduce Britain's spiralling levels of debt.

Article Source: http://www.mycontentbuilder.com

Paul McIndoe is a recent university graduate whose hobbies include water-skiing and rock climbing.

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