What you need to know
While demand for credit has increased in tandem with economic growth, rising employment and generally strong consumer confidence in both NI and RoI, the levels of borrowing are nowhere near what they were during the pre-recession, economic boom years.
This is due both to a broadly responsible attitude towards borrowing among consumers – with most borrowing being for sensible, pragmatic reasons – and to the more cautious attitude towards lending among lenders. In addition, however, there is a brooding anxiety among consumers with respect to what the short-to-medium-term future holds, primarily on account of the myriad uncertainties surrounding Brexit.
Issues covered in this Report
This Report examines loans and other forms of credit in NI and RoI. It analyses the main factors determining supply and demand for loans and other credit products. Drawing on exclusive consumer data, it analyses levels of ownership among consumers of loans and other credit products, the amount owed on these products, reasons for taking out past loans and reasons for taking out future loans.
Definitions
This Report covers unsecured personal loans and certain other forms of credit issued by financial institutions (such as banks, building societies and credit unions) to individual consumers. Lending to businesses is not included.
Current account overdrafts are included in this Report as a loan product, as they are used by consumers as short-term forms of credit to help make ends meet. Overdrafts can be arranged or unarranged, with many banks imposing penalties on account holders for unarranged overdrafts. While not typically viewed as a loan product, given their prolific use by Irish consumers, they are examined within this Report.
Unsecured personal loans are not secured against an asset such as property. Loans can also be taken for a specific purpose, and are often marketed as such, for example holiday loans, wedding loans and home improvement loans.
Unsecured (personal) loans are a form of consumer credit (like credit cards and overdrafts). They are predominantly sold direct to consumers by banks and building societies and other financial services providers such as credit card issuers and retailers. They are granted for personal use, subject to credit checks, and are available for varying amounts and repayment terms (normally from one to 10 years).
Secured (homeowner) loans are loans that are secured against the borrower’s property, meaning that the borrower runs the risk of having their home repossessed if they fail to keep up their repayments. The loan is additional to the first mortgage taken on the property – hence they are also referred to as ‘second charge mortgages’.
With both secured and unsecured loans, the amount loaned, plus interest, is repaid by the borrower usually in monthly increments. Specific loan types such as graduate loans, car loans, debt consolidation loans and home improvement loans are merely unsecured or secured loans under a different name. Other relevant products include payday loans and peer-to-peer loans, which are both sub-sectors of the unsecured loans market.
Payday loans are a form of short-term credit aimed at individuals who are in need of cash in advance of their normal payday. They differ from standard unsecured personal loans in that they are available for smaller amounts and have much shorter terms.
Peer-to-peer/social lending is a method of debt financing that enables individuals to borrow and lend money without the use of an official financial institution as an intermediary. The advantage to the lender is that the money they lend generates income in the form of interest, which can exceed the amount of interest earned by traditional means (such as from savings accounts). It also gives the borrower access to finance that they may not have otherwise obtained approval for from standard financial intermediaries.
