North West has largest proportion of ‘imperfect lenders

The North West has the largest proportion of borrowers in the UK who say they took out credit to consolidate their debts and pay a lower rate of interest.

A new report co-authored by Nava, a new online consumer lending platform, and the Centre for Economics and Business Research (Cebr) reveals that the North West of England has around one million ‘imperfect borrowers’.

The Perfect Borrower? report draws on official data from the Office for National Statistics, the Bank of England and a YouGov survey of over 2,000 adults.

It estimates that 21% of people in the North West (one million) are considered ‘imperfect borrowers’ by traditional banks and building societies, significantly reducing their chances of being approved for credit and also increasing the cost of borrowing.

To be defined as an ‘imperfect borrower’, an individual might have either moved house three or more times over the past three years, had a variable income (self-employed or zero hours contract), have not been registered to vote in the UK, have no credit history, have lived in the UK for less than a year or had a County Court Judgment.

This leaves them with a lower credit score – no matter their current personal circumstances – and therefore a reduced chance of accessing a personal loan at the best possible rate of interest, if at all.

Despite the challenges facing many borrowers in the UK, credit demand is strong and plays a key role in supporting consumers’ everyday lives.

Individuals in the North West take out personal loans for a wide range of reasons. The most commonly cited reason is not having the funds to make a purchase straightaway, with a quarter (25%) of those surveyed giving this reason for taking out a personal loan or other form of credit in the past.

Some 21% reported taking out a loan to consolidate their debts and pay a lower rate of interest, which was selected by more people in the North West than anywhere else in the UK. A further 17% wanted to pay for something over a longer period of time even though they had the necessary funds to make an outright purchase.

In terms of the type of purchases being made using personal loans in the North West over the last five years, more than a quarter (27%) of adults did so to buy a new car. 16% took out a personal loan to pay for a holiday, while 11% did so to purchase white goods such as a refrigerator or washing machine.

Abhai Rajguru, Co-Founder of Nava said: “As it stands, the consumer lending industry simply isn’t working well enough for a huge number of mainstream borrowers. High street lenders continue to cherry pick ‘perfect’ borrowers with excellent credit records. Therefore huge numbers of borrowers labelled ‘imperfect’ find themselves rejected and pushed towards alternative lenders.”

Scott Corfe, director at Cebr said: “People in the UK lead busy, varied and complicated lives, which means that many fail to be seen as ‘perfect borrowers’ in the eyes of traditional lenders.

“Moving home regularly or not being on the electoral roll can leave consumers penalised with higher interest rates or indeed outright rejections for loans, based on the common credit score approach to lending.

“There is a case for a more common sense and transparent approach, which focuses more on an individual’s ability to repay a loan rather than factors which have no direct bearing on capacity to pay.”