Banks often send customers offers for personal loans that are bigger than what they bring home in a year. However, according to Money Mail, these loans often come with very high-interest rates that could affect a household’s ability to repay the loan quickly can and stay in debt.
The Office for National Statistics said UK families are about £25billion in debt, which is nearly a quarter of the NHS budget. Although alarm bells are sounding about a 2008-like recession, lenders are still pushing personal loans on people who don’t need them.
Money Mail’s research noted that about half of Britons were offered a personal loan from their bank within the last year, with a third receiving offers from rival banks.
What’s more troubling is how much the banks are offering to lend. One-quarter of the borrowers said the loan extended £10,000 with a fifth saying the loan was more than what they bring home in a year. Mortgage lenders are also offering loans that are four times a person’s average salary, which puts into perspective the large amounts of money banks are willing to give people to make home renovations, buy cars, etc.
Over half of the respondents said they accepted a loan offer that causes them financial distress.
According to another researcher, key High Street banks are providing high-interest loans to customers. In fact, some customers are paying £1,400 more a year to their own bank.
Banks and other financial entities that confess to marketing personal loans to their customers include Barclays, Nationwide, John Lewis Finance and Santander. However, the lenders say that correspondence is only sent to customers who agreed to get them. It could be a simple matter of remembering or not remembering to click a box.
The majority of banks claims to do an in-depth assessment of a person’s financial history, but Barclays was reported to have sent a customer multiple emails about a personalized personal loan. This customer never once showed interest in applying for a personal loan.
Another tidbit Barclays uses is that once the application is approved, the person can receive their money within minutes.
According to the Barclays email, it breaks down a personal example of the loans that the customer can receive and how much it’ll cost them. In the above customer’s email, they were offered £50,000, which is £10,000 more than they make in a year. They were also offered a 12.1 percent interest rate, which is higher than many other places. If accepted, the bank would have made £16,000 in the interest for 60 months.
NatWest offers the same kind of loan at 6.9 percent interest rates with a monthly repayment that more than £100 less than Barclays.
According to Fairer Finance Managing Director James Daley, the action is a bit callous and should raise Barclays shareholders’ concerns about their bank’s practices. A person who makes just £40,000 a year but is offered a £50,000 personal loan is going to hinder them from being financially secure for the duration of that loan.
According to a Twitter Barclays customer, they were offered a £22,000 loan at 23.9 percent, but Sainsburys Bank offered the same loan amount at 2.9 percent.
MoneyComms employee Andrew Hagger said he’s concerned that banks may think they’re doing their customers a favor by offering this “great deal.”
This doesn’t always translate as such.
Money Mail uncovered banks are increasing the credit card limits of customers without being asked to – some even tripling the amount without the request.
According to experts, new rules were put in place on banks offering payday loans, credit cards and mortgages, which is why they’re pushing personal loans so aggressively. The rules were put in place after the crackdown on payday loan lenders, the exorbitant overdraft charges and the changes imposed in the mortgage market.
Banks were ordered to assist credit card customers who were in over their heads with debt, by offering them an affordable way to pay off their balances and waive the fees.
According to Daley, the personal loan market has yet to face any scrutiny, which is why financial entities are so focused on pushing them on customers.
PayPlan money advisor Jane Clark said lenders need to be accountable in ensuring their customers don’t fall into deep debt.
