Consumers shy away from unsecured loans

The latest statistics released by the Finance and Leasing Association (FLA) showed that unsecured loan business has been significantly hit by the credit crunch with new business 45% lower in February compared with February 2008.

An unsecured loan is a loan where the lender does not use the customer's house as security.

Consumer reluctance to commit to longer-term credit repayments may be an influencing factor. Rising unemployment has also meant that granting loans is riskier for lenders.

Store instalment credit continued to defy the downturn with 8 per cent growth in February. Good-value deals in store, such as deferring payment and interest-free credit, have made this a popular way to buy. These purchases are usually for small amounts and show that consumers are more confident of being able to meet repayments on low cost loans.

Other sectors continued to show a weak performance:

Total finance provided to consumers in the 12 months to February 2009 by FLA members was £58.2bn, down by 12% on the 12 months to February 2008.

Secured loans fell 83% in February 2009 compared with the same month in 2008.

New credit card business was down 11 per cent in February compared with February 2008.

Geraldine Kilkelly, Head of Research and Chief Economist at the FLA, said: "Rising unemployment and low consumer confidence have led to a further drop in unsecured loan new business in the last two months. Our figures show that FLA members have written £660m-worth of new unsecured loan business in the first two months of 2009, compared with £1.1 billion in the same period last year."