Growing demand for consumer credit in the UK is being underpinned by a move for consumers to consolidate debt, according to new research from Freedom Finance.

Analysis by the finance broker found that 41% of all people who searched for a loan through the Freedom Finance platform in April 2023 were looking to consolidate debt. The second most common reason was home improvements (25%).

As interest rates on overdrafts and credit cards have increased rapidly since the middle of last year, so has the number of people looking to consolidate more expensive, ongoing debt into lower-cost, fixed-term personal loans. Freedom Finance revealed that its latest Credit Monitor has shown that credit card rates are now at their highest level since December 1997.

Demand for debt consolidation has, in turn, sparked an increase in demand for personal loans, which has bounced back since the market disruption seen last autumn. Freedom Finance also suggested that this demand has led to more consumers using digital platforms, after the firm reported a 50% increase in demand on its own platform compared to this point last year – to find loan products.

As well as increasing overall demand on the platform, Freedom Finance added that the trend to consolidate household debt has meant that more wealthy borrowers are also using the platform, as the average salary of applicants has increased steadily over the past 12 months.

Chief growth officer at Freedom Finance, Andrew Fisher, said that “tightening credit conditions” are prompting more people to use soft credit search technology to shop around competitive rates.

“We have seen a clear shift in the market of the past few months where all types of borrowers are moving toward using personal loans to pay off other more expensive forms of debt, such as credit cards and overdrafts,” Fisher commented.

“The changing conditions as rates have risen have also seen people look to borrow in new ways. We are seeing more people and different demographics coming onto our platform to look for the most appropriate credit products available to them.

“Consumers like to use platforms with soft credit search technology because they can get a realistic picture of all their credit options without risking damage to their credit rating.”

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