Consumer borrowing grows at its fastest pace in almost a decade

Posted by Ben Tumilty in Personal Finance on 29 November 2016 - Ben is a Credit Analyst at checkmyfile

It’s beginning to look a lot like Christmas. Not weather-wise, though – instead, we’re spending more money on unsecured credit.

In fact, annual consumer credit in the year to October grew at its fastest since November 2006, according to the British Bankers’ Association (BBA) – a 7% growth.

We added £633m to the net total of unsecured borrowing in October, up from £433m in September. This looks to have been fuelled mainly by personal loans and overdrafts, but also follows on from lenders cutting interest rates on loans and credit cards, as well as increasing credit limits across the board.

Borrowing on credit card debt reached £62.2bn in October, up by £221m in September and £2.3bn annually. The cost of credit has dropped rapidly recently, meaning those that like to utilise their lines of credit are able to make hay.

The number of introductory deals on credit cards such as 0% balance transfer and purchase offers are a big draw for new customers, with banks fighting over customers. 56.6% of all credit card debt is currently incurring interest as a result of these offers – this is a record low, and when compared to the 75% figure from November 2006 shows a stark contrast.

We love a spend at Christmas – last November we borrowed £1.5bn on credit cards in the run-up to Christmas, and 2014 saw the average family spend £800 on festive purchases. Additionally, with Black Friday 2015 bringing in more than £1bn (and the entire weekend topping £3bn), November sees just as big a spike, if not more.

BBA’s Rebecca Harding comments, “Consumer credit is now growing at its fastest rate since November 2006, reflecting strong retail sales growth. Consumer confidence remains robust as borrowers take advantage of record low interest rates.”

Paul Gordon from Lloyds also suggests that consumers are trying to buck the post-Brexit concerns, but also warns that we do not yet know what will happen. He explains, “As we move towards the end of the calendar year, we can expect that the use of credit cards will continue to rise – particularly in relation to Black Friday and Christmas sales – but the impact of recent political and economic changes on borrowing patterns is yet to be seen.”

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