Over a million people rely on personal loans to pay off existing debt
Figures from the City regulator show 6.3 million people take out a personal loan in a year, and one fifth – the equivalent of 1.4 million people – do so to clear debt or pay off borrowing, according to analysis by the comparison site.
The research also found that one in ten borrowers have had a personal loan application declined, with a third saying it was because they had too much debt already.
The most common reason for a loan rejection was poor credit history (51%), while one in ten said they were rejected because they had made too many credit applications already.
John Crossley, head of money at Comparethemarket, said: “The way we view and manage debt has changed, with over one-fifth of borrowers now utilising personal loans to pay off existing debt. If poorly managed this can lead to a spiral of repayments, which could be damaging to people’s credit score or way of life if they cannot afford the repayments.”
According to Ciztizens Advice, this is the busiest week of the year for debt advice.
Tips for becoming a better borrower
- Make sure you’re up to date on paying all your bills
- Avoid making multiple credit applications in a short space of time, utilising soft searches to check your eligibility instead
- Make sure any mistakes on your credit score are corrected
- Try not to max out all your available credit
- Where possible, try to clear your credit balance at the end of every month
- Avoid missing credit card payments
- Watch out for any fraudulent activity on your accounts
- Use your overdraft responsibly and avoid unauthorised borrowing