The consumer loan financial landscape is undergoing significant change all over the world. The days of traditional banks ruling the roost are at an end. It’s been made possible by the rise of the Fintech industry. It has created the opportunity for the arrival of so-called challenger banks (also referred to as neo of digital banks), and a new infrastructure framework. Leading players in the UK challenger bank network include Algbra, Atom, Revolut, and Starling.
Along with challenger banks, this new infrastructure in the UK also includes alternative financial platforms and a new breed of digital loan comparison or tendering sites.
The consumer loan landscape in the UK
Back in 2009, 92% of the UK adult population banked with the traditional banking network, including the likes of Barclays, HSBC, Lloyds, NatWest and Santander. However, times are changing, and now, a recent survey of 1,500 consumers carried out by the Financial IT website revealed that only 33% of current traditional bank account holders would not consider swapping their accounts to a neo-bank.
According to the MoneySuperMarket.com website, the most common amount and term for consumer loans is from £1,000 to £4,999 over a 2-year term. Next come loans for sums from £5,000 to £20,000 with repayments over a 5-year term. Average loan amounts and why they are taken out are broadly categorised as follows:
| Loan Purpose | Average Loan Amount |
| Home improvements | £13, 250 |
| Consolidation of debts | £12, 530 |
| Automobile purchase | £12,750 |
| Vacationing | £4,975 |
| Weddings | £9,835 |
Interest rates on loans vary widely. The general rule of thumb is, the more you borrow, the lower the interest rate, while the less you borrow, the higher the rate. The averages are as follows:
| Loan Amount | Average Rate of Interest |
| £1,000 to £3,000 | 38.6% |
| £3,001 to £5,000 | 24.2% |
| £5,001 to £7,500 | 17.8% |
| £7,501 to £15,000 | 11.3% |
| £15,001 to £20,000 | 9.2% |
| £20,001+ | 8.4% |
According to the NimbleFins website, the UK age group with the highest average loan amount is 25 to 34 years old, borrowing an average sum of £5,300.
As can be seen from the table above, average interest rates vary anywhere from around 38.6% down to 8.4%.
According to the ONS, the CPIH (Consumer Price Inflation including Housing costs) rate over the past 12 months was 3.7%. The clear indication is that prices continue to rise on already hugely increased costs over the past 2 years brought about due to record rates of inflation. It brings more pressure to bear on UK residents. With world economics in turmoil due to the ongoing wars and the USA imposing huge tariff increases, CPIH is likely to increase, perhaps significantly. UK residents will be desperate to reduce their outgoings and will turn to consumer loans in greater numbers, especially when it comes to things like debt consolidation.
The problem is that loan interest rates in the UK are not capped, so you need to take care when choosing a lender. Some, but not all alternative finance loan companies, are FCA-approved and regulated, and this will help. But if you borrow money from an unregulated lender, you could increase your vulnerability, especially if you take a loan with a variable interest rate.
The best way to choose a consumer loan is to use the services of a digital consumer loan tendering company. You can get advice from their team of experts and ask them to ensure that the offers you’re given are from regulated lenders. It’s not as cut and dried as it is in Finland.
The consumer loan landscape in Finland
If you check out the Laina heti website, halfway down the platform’s landing page you’ll come across the heading, ‘Five ways to save on loan costs’. Under point 5, it states that in accordance with the Finnish government proposal, the cap on consumer credit interest was reduced from 20% to 15% per cent in October 2023. This is on top of the interest reference rate. What it all boils down to is that the maximum interest that lenders can charge on consumer loans is 20%.
The Laina-Heti website mentioned above is a loan tendering site. Once you complete a simple application form (which generally takes less than 3 minutes), within 24 hours you’ll be emailed a list of at least 20 loan offers from different sources, all of which should show loan interest within the 20% rate cap.
Just like Brits, Finns are feeling the mounting pressure of the rising cost of living. Consolidation loans are the smart answer when it comes to lowering your repayment costs if you have several debts. You use the loan to pay off all of your debts, and because the total amount of the consolidation loan is greater than the sum of the individual parts of the various smaller debts, you’ll be offered a significantly better interest rate.
The lower rate of interest, plus the cap guarantee, means that Finns get a better deal on consolidation loans than their British counterparts in the UK.
The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any finance decisions. Appropriate independent advice should be obtained before making any such decision. London Loves Business bears no responsibility for any gains or losses.
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