Decline rates on loan applications reached a new 10 year high for us last month. It continues a worrying trend where alternative finance options are starting to dry up.
As many will be aware, consumers head to sites like ours when they believe, or find out, that they cannot obtain further credit products from mainstream lenders. What we know from our industry is that the customer flow towards us always follows the same journey.
1) Borrower obtains credit card/overdraft
2) Borrower exhausts Credit Card / Overdraft
3) Borrower applies for a loan from the bank to pay off the credit card or overdraft
4) Borrower then starts to spend on the credit card again until they reach the limit.
5) Borrower Applies for a new loan with the bank, bank declines.
6) Borrower comes to us.
If we are starting to witness higher declined rates, the highest since we started in 2009 then we are starting to worry for everyone else. 6 out of every 10 people are now being declined by our industry.
This could mean one of two things, lenders are becoming tighter about who they lend to. Or customers are applying in more places in a desperate attempt to be approved.
We approached the Debt Charity StepChange for comment, Sandra Austwick said "Debt is a really big problem, the demand for our services reaches new highs every month. January and February are our busiest months, and 2019 is expected to be our busiest year yet. It isn't that people are out of work, it's that the cost of living is now so expensive."
Lenders are under strict guidelines now that they must not lend to people who are considered to be possible overextending themselves. With this in mind, we don't yet know if it is lenders that are no longer willing to lend due to the fear of not being repaid, or if lenders are scared of missold complaints being lodged against them.
What may be more worrying is that significant financial credit crunch is again on its way. Every major crash in recent times has been preceded by "declined rates" at banks increasing. That's what we are seeing in our sector, so we imagine it is what is happening in mainstream banking too.
Where will borrowers turn then?