It looks to be a difficult year ahead for
credit cards in the UK as accountancy firm, PricewaterhouseCoopers
(PwC) reveals consumer confidence remains weak in its annual report
on the consumer credit industry.
Figures from the Precious Plastic
2011 report shows unsecured borrowing fell by over £500 per
household in 2010, a trend PwC expect to continue with a further
fall of up to £300 in 2011.
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Richard Thompson, a partner at PwC predicts
interest rates on borrowing could also rise by 2% to 3%, which
would mean that, on average, UK households would need to find an
extra £1,800 a year for interest payments alone.
“January is traditionally the time of year
when people reflect on their financial situation and our research
shows that consumer confidence is still weak,” said Thompson.
“In fact, some 40% of respondents still expect
their pay to be reduced or frozen in the coming year. Consequently,
households are seeking to reduce the amount that they borrow. These
worries are driving consumers back to ‘jam jarring’, whereby they
shun large loans and open ended credit cards in favour of smaller,
shorter term borrowing for a particular purchase, in an effort to
control their borrowing.”
The number of credit cards in circulation in
2010 was down by 1.5m when compared to 2009, the lowest levels
since 2003, according to the report. Supply and demand is cited as
the reason for this cooling trend towards credit as consumers
increasingly prioritise paying off their debts.
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By GlobalDataMany UK consumers may also find themselves
being forced into the ‘underbanked’ category as mainstream lenders
focus on those with stronger credit histories in a bid to reduce
credit losses.
“There is strong evidence that the type of
credit demanded by consumers is changing. Point of sale finance
products, payday loans, home credit providers and pawnbrokers will
all play their part in providing for these kinds of consumers, but
the cost of credit needs simpler explanation for consumers,” said
Thompson.
“A great deal of progress has been made by
lenders in improving the transparency of products, but consumers
themselves need to ensure they understand what they are signing up
for.”
