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Borrowers choosing to pay off debts

Borrowers choosing to pay off debts

Category: Loans

Updated: 09/03/2011
First Published: 19/04/2010

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Borrowers appear to be increasingly choosing to pay off their debts, after it was revealed fewer personal loans were being taken out to consolidate debt.

According to Sainsbury's Finance, one pound in every 50 taken out by the supermarket bank's personal loan customers in 2009 was used solely for debt consolidation purposes, compared with one in every 13 taken out in 2007.

Bank of England statistics also recently showed that for 5 consecutive months in the latter half of 2009, repayments outstripped new unsecured consumer credit.

"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," said Steven Baillie, head of loans at Sainsbury's Finance.

"This suggests that more and more people are choosing to repay their debts rather than consolidate them."

He added that for those with multiple debts, consolidation still remained a good way to reduce monthly outgoings, as long as the borrower looked around for the best personal loans rates on the market.

Large purchases, such as home improvements and buying a car, were found to be the most common reason for taking out a loan at present.

Secured or homeowner loans are commonly used to fund home improvements or other major purchases such as buying a new car - Compare secured loans

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