During March, consumer credit advances fell by 7% compared to the previous year, according to the Finance & Leasing Association (FLA). The figure reflects how the UK public remain wary of increasing their levels of debt in the current financial climate.
As the cost of living has increased, consumers have been spending less, which has resulted in a reduction in the amount of money being borrowed. There was a somewhat unexpected 28% drop in store instalment lending (payment plans that allow people to purchase things like sofas and TVs on credit), whilst the amount of money spent on store cards fell by 21%. Money borrowed on credit cards was 8% less than March 2010, but this still remained the largest single area of borrowing, with a total of £2.53bn spent on credit cards.
The number of people taking out unsecured loans fell sharply, and the overall amount of borrowing in this form decreased by 15% to £182 million. Second charge mortgages, through which people can borrow money secured against the value of their property, were down by 11%.
Despite the rising cost of motoring, car finance remained stable compared to last year, with advances totalling £1.72bn.
A recent survey by Nationwide indicated that high levels of unemployment and stagnating salaries have contributed to falling consumer confidence, and the figures released by the FLA fit with this picture. As long as disposable income remains in short supply, cautiousness towards borrowing will persist.