Debt Consolidation Loans Fall Out With Favour With Borrowers

Debt consolidation loans are falling out of favour as borrowers seek to pay off their debts rather than consolidate them.

New research from Sainsburys Finance shows that debt consolidation is now less frequently cited as a reason for people taking out personal loans. Loans are now being sought for home improvement and car purchases, the supermarket bank has found.

In 2009 one pound in every 50 borrowed was requested for debt consolidation whereas in 2007 one pound in every 13 taken out by Sainsburys Personal Finance customers was for the consolidation of debts. In 2008 it was one pound in every nineteen.

The decline in debt consolidation may be an indication that the difficult economic climate has led debt-conscious consumers to try and pay off their debts, an analysis that backs up Bank of England statistics which show that for five consecutive months in the latter half of 2009, repayments outstripped new unsecured consumer credit.

Steven Baillie, Head of Loans at Sainsbury’s Finance, said: “Debt consolidation has always been one of the most common reasons for people to take out personal loans, but while more and more people are taking out a loan for other reasons, there has been a sharp decline in the proportion of people borrowing money in order to consolidate their debts. This suggests that more and more people are choosing to repay their debts rather than consolidate them.”

“However, for those with multiple debts, consolidation is still one way to reduce their monthly outgoings as long as they look around for the best rates on the market, which could save them a considerable amount in repayments.”