Around £37 billion of personal loans are taken out in the UK every year. We are a nation of happy borrowers, whether we’re borrowing a straightforward loan, a payday loan or something like a guarantor loan. However, while many of us have that desire to borrow in common, the reasons for doing so are not always the same. These are some of the most frequent uses for a personal loan for UK borrowers.
Consolidating other debts
Many people with multiple debts find it difficult to balance all the repayments involved, as well as the interest. A debt consolidation loan offers a way to make this easier – and can also bring down the cost of debt too. Ideally, borrowers looking for a debt consolidation loan will find one with an interest rate that is lower than other borrowings. The loan is used to pay off an existing loan or credit cards so that there is just one payment left to make each month – and less interest to pay overall. According to research by VoucherCodesPro.co.uk, around a third of those who make an application for a personal loan do so because they want to consolidate existing debt.
A life emergency
This very wide category could include anything, from locking yourself out of the house and requiring a locksmith, to paying for medical expenses abroad. Around 9% of personal loans taken out are required to cover something like this, often where the borrower doesn’t have any savings in place to avoid borrowing. Payday loans are one of the most popular options for emergency borrowing – around 760,000 are approved each year for a short-term loan to help deal with something urgent.
Making lifestyle improvements
Personal loans can be used for just about anything and many people choose to borrow to make changes to their lifestyle. Paying for holidays is one of the main reasons that people borrow money in the UK, for example, while home improvements account for around 24%. Other popular lifestyle improvements that people tend to need to borrow for can include covering the cost of a new car and paying for luxury items and treats. Most lenders now insist that borrowing should not be used for items such as luxuries or to pay for holidays. However, this is still one of the most popular reasons for borrowers to make lending applications.
The big life events
Most of us are accustomed to the fact that we will have to borrow – via a mortgage – in order to make a big property move like buying a house. However, there are also a range of other big life events that we tend to turn to personal loans to help handle the cost of. Paying for a wedding is one of the most obvious. Around 7% of those making applications for personal loans – according to the VoucherCodesPro.co.uk research – are doing so because they need more cash for impending nuptials.
Buying items for others
Another very common reason to take out a personal loan is if you’re looking to make purchases for others. This is especially so around Christmas time when parents who don’t have that much spare cash might be tempted to apply for a loan to help cover the cost of Christmas presents, food and entertainment. Gifts for children – at any time of year – are a big motivation for borrowing, as well as for spouses and partners, whether male or female.
Starting a business
Getting a new venture off the ground can be incredibly expensive and for many people commercial finance is simply not available. That’s why one of the most popular reasons for making an application for a loan is to provide funds to help keep cash flowing through a new business.
Making ends meet
Around 22% of people are borrowing to help them simply cover the cost of living according to VoucherCodesPro.co.uk. This could be something as simple as using a payday loan to pay for a weekly food shop or borrowing a personal loan to ensure that you’re able to make payments to an energy provider. Although there are many people in the UK who do borrow for this purpose, it’s not a recommended reason to make an application for a loan. Sometimes, borrowing to make ends meet can actually make the situation worse – not only will you have the repayments on the loan to make but the cost of the interest too.
The average loan size in the UK is around £3,500 but the reasons for making an application to borrow are incredibly varied. From emergency situations to buying items for others, as consumers, we are motivated by many different things.
Amanda Gillam is Solution Loans's General Manager and has been since 2009. She is also a prolific writer on personal finance issues, and has been quoted numerous times in articles published on 3rd party websites and in press releases. Her...Read more about Amanda Gillam