More than a third of Britons say they are financially unprepared for emergencies, a new study shows, and more than a quarter say they are worse off than before the pandemic.
Access to affordable credit can be important to people’s financial stability, but one in five say they feel locked out of the financial system – about 11 million people – according to the 2022 Financial Inclusion Report from London-based lender Bland.
This figure rises to 38 percent of black ethnic group and 32 percent of all ethnic groups who feel they do not have access to financial services in the UK.
The Covid-19 pandemic has affected finances with 18% of respondents saying they had to borrow money due to the pandemic.
Three out of five respondents to the survey, which was conducted by Opium Research in January, say they use some form of credit.
Credit cards account for the majority of borrowing followed by buy now pay later loans.
However, despite the large numbers of people who use credit, many find it difficult to repay their loans.
Half of those with loans said they were struggling to pay them back, compared to 38 percent of people with credit cards and 37 percent of BNPL users.
The average amount borrowed via a loan is £8,200, with men borrowing significantly more (£9,952) than women (£6,347).
The interest rates on the loans averaged 16.3 percent according to the respondents, and rose to 21.6 percent for those under the age of 34.
Nearly one-fifth of the survey respondents said they did not know the interest rate they were currently paying on their loans.
According to the financial well-being and education charity The Money Charity, 346 people were declared insolvent or bankrupt every day in England and Wales from February to April 2022. This was the equivalent of one person every four minutes.
Nearly half of those who use credit say they simply make the minimum payments each month, with one in ten unable to manage even the minimum payments.
Blind says this is an indication of the lack of affordable credit products on the market.
The Financial Exclusion Clause defines it as: When a person is penalized for past events beyond their control, they have to pay significantly more for financial services and are more vulnerable to bankruptcy or individual voluntary arrangements.
Also, relying more on unreliable sources of financial support, such as friends or family, leads to increased vulnerability and dependence on others.
Of those who felt financially excluded, 23 percent accepted a high-interest credit product.
Men borrow more, with an average loan of around £10.00, compared to around £6,300 for women.
Moreover, 16 percent of people who were turned down for high-interest loans have resorted to loan sharks or illegal lenders. However, these people represent only 1 percent of the total population of the United Kingdom.
Research published in April by PwC found that 20.2m people in the UK are finding it difficult to get credit from major lenders, up by 50 per cent on 2016.
Rob Pascoe, founder of Blend, said: ‘It is outrageous to find that financial discrimination and exclusion are on the rise, which is having a detrimental impact on society as a whole and widening the poverty gap.
Having a thin or invisible credit profile is one of the reasons why many people are financially excluded from accessing affordable credit products and basic financial services – the lending industry has failed to address this problem at a time when the need for it has never been greater due to the cost of the crisis livelihood
Likewise, the survey revealed gaps in the country’s financial literacy. Data shows that only 41 percent of adults know their credit score and 60 percent of the general population does not understand how credit scores are calculated.
According to the PWC, 20.2 million people in the UK find it difficult to get credit from major lenders.
MP Yvonne Foufarage, Chair of the All-Party Parliamentary Group on Debt and Personal Finance, commented on the findings of the reports, saying: ‘There is a responsibility on banks and the financial sector to show a willingness to serve the disadvantaged and at least offer a gateway to a more affordable financial future.
“Not only is it the right thing to do, but it makes business sense; a better financial future means better customers.
The report comes as households face additional pressures on their finances from rapidly rising inflation and rising energy bills.
In May, food price inflation rose to 8.3 per cent, from 7 per cent, an increase of nearly £400 a year, the highest level since 2009.
The Grocery Distribution Institute has warned that people may skip meals in an effort to cut back on spending.
This is at a time when people are still recovering financially from the pandemic.
In the report, 18 percent of people said they had to borrow money because of the pandemic. That number rises to 35 percent for those ages 18 to 34 and more than doubles to 38 percent for minority ethnic groups.
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