An increasing amount of young people are becoming dependent on the use of credit to manage their finances as a result of the cost-of-living crisis, Moneyhub Decisioning research has revealed.

The open finance data platform has found that in the last six months, nearly a quarter (24%) of people under the age of 35 have applied for an overdraft, of which 21% had a pre-existing overdraft.

Furthermore, almost one in five (19%) of young people have applied for a personal loan, with 12% applying successfully in the last six months.

A further 19% of under-35s have applied for a payday loan within this period, with these products being used to cover the costs of everyday spending and expenses, such as rent or mortgages, petrol and groceries. Of those with a personal loan, 22% are using the product to manage everyday expenses and almost a third (29%) with a payday loan.

The increase in this trend has been put down to rises in rent, which have increased 5.7% year on year according to Zoopla, and inflation remains at a high of 8.7% according to the Office for National Statistics (ONS).

With the Consumer Duty deadline looming, banks and other lenders are under increasing pressure to ensure that their customers are on the right products for their circumstances. With the Financial Ombudsman stating that credit cards were the second most complained about product in the last quarter, Moneyhub has suggested there is an opportunity for lenders to help their customers understand the product they are applying for and ensure it is suitable for their financial situation.

Managing director at Moneyhub, Suzanne Homewood, said: “Credit is a lifeline for many, but when it is being used to cover everyday expenses and make up for a shortfall in income, it is often a sign of a much bigger issue, and potential future vulnerability that isn't today being taken into consideration at point of application.

“Open finance based affordability and decisioning tools mean that lenders across the board can ensure that loans are affordable today, and also take the opportunity to support the longer term education and confidence of the younger generation when taking out a loan. Offering ongoing affordability checks could help ensure the loan is still appropriate, whilst providing options should things get worse, before they spiral into debt and fall behind with repayments.

“Responsible lending isn't just what happens at the beginning of a loan, it's what happens throughout the lifetime of the loan. With 34% of the UK population stating that they would be happy to share their financial situation with a bank or a lender in order to get more suitable products, Moneyhub is championing the transparent and informative use of personal finance data to help everyone make better decisions.”

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