Sector Insight: Personal Loans - Low Rates, High Interest

Marketing, February 16, 2005 | Go to article overview

Sector Insight: Personal Loans - Low Rates, High Interest


Loan companies are capitalising on consumers' reluctance to save for what they want.

THE BACKGROUND: Consumer borrowing is now in excess of pounds 200bn and the rising figure shows little sign of abating. Debts have spiralled due to a growing number of credit sources, from unsecured loans and offset mortgages to credit cards, and stiffer competition for business has compounded the problem. High employment and low interest rates have done little to stem the flow, although there is evidence to suggest that individual debt levels are sitting at more manageable levels.

Where once it was the norm to save for those big-ticket items, consumers today are not interested in waiting for what they want; instead, loans can provide the answer. Last year, total consumer lending was estimated to have hit pounds 219bn.

Strong consumer confidence and a low base rate have helped fuel the growth in loans, with the value of unsecured loans rising by 43% since 2000, according to Mintel.

When it comes to arranging a loan, consumers are most likely to use a name with which they are familiar and that they trust. Mintel's consumer research puts Lloyds TSB top of the list (12% of market share) followed by HSBC, Barclays Bank and Halifax. Similarly, consumers will often approach their current-account provider first because of convenience.

This choice is also informed by the fact that people generally prefer to arrange loans in person. Of those consumers arranging loans, a third opt to visit a branch, compared with 10% doing so over the telephone.

While people use the internet to research the best deals, fewer than 10% sign up online, although many providers expect this to increase considerably.

Tony Gibbons, director of personal loans at Lloyds TSB, says: 'The proportion of people going direct is rising, but borrowing thousands of pounds is an important decision and people like to talk face to face about it and shake someone's hand. While we traditionally lend to existing customers, we are getting new customers through the internet.'

Lending competition

Personal loans are generally used for practical purposes such as cars, home improvements and consolidating debts. Buying a car heads the list of reasons for taking out a loan, so it is not surprising that one of the main competitors to this market is specialist car finance deals, with the trend for multiple car ownership helping fuel this growth. Such deals tend to be arranged on-site by car dealers and negotiation can make them very competitive.

The personal loans market also faces competition from alternative credit products such as credit cards and value-added bank accounts, which may offer more convenience or lower rates of interest. The credit card market is particularly popular, with tempting offers of 0% APR. People tend to use credit cards for bigger purchases, having been drawn in by the credit facility and the offer of consumer protection. Zero per cent deals mean people often transfer their debt or switch cards, and may use them instead of arranging a loan.

Some credit-card providers, such as Barclaycard, have been actively marketing loan facilities. It sends statements to its users that include the amount available to them to take out as a loan. By linking Barclaycard and Barclayloan, it can exploit cross-selling more effectively and better organise its credit business.

All-in-one products are growing in popularity, especially with first-time house-buyers. These mortgages allow customers to add loans to their account, generally at the same rate of interest as their mortgage, up to a total offset limit. Their flexibility has attracted consumers, although they tend to offer the most benefit to those with savings or irregular incomes.

David Ramsbottom, One Account head of marketing, says: 'Borrowing money using your current-account mortgage, rather than taking out expensive personal loans, makes financial sense. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Sector Insight: Personal Loans - Low Rates, High Interest
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.