Middle stop borrowing as poor rush for loans
People with precarious financial lives have been rushing to get high-interest loans as the economic impact of coronavirus hits home, including seeking loans to buy food.
There had been a 23 per cent increase in applications for personal loans in the past five weeks among people with credit scores of 299 or below, said Keith McLaughlin, chief executive of the Centrix credit reporting agency.
Credit scores run from zero to 1000, and scores of below 400 indicate people with a history of missing loan repayments, or payments to the likes of power companies.
There had been a 12 per cent increase in loan applications for people with credit scores of 300-399.
McLaughlin said better-off people with higher credit scores had been making fewer applications for loans. ‘‘Consumers with high scores are no longer as active whereas credit demand in low scores segments remains strong,’’ he said.
As a result, mortgage inquiries had fallen sharply. Applications for car loans had fallen too, as had credit card applications.
Overall demand for loans had dropped 14 per cent in March compared to February as people decided not to borrow as the full impact of the coronavirus crisis became clear, Centrix data showed.
The decline was driven by people with the highest credit scores deciding not to borrow, with declines in applications for loans of 5 per cent among people with credit scores of 700-799, 13 per cent for people with scores of 800-899, and 18 per cent for people with scores of 900 or more.
‘‘What tends to happen is when there is a confidence issue, or uncertainty, people don’t make big decisions. Coronavirus is that with bells and whistles on,’’ said Simon Bligh, chief executive of credit agency Illion, which had recorded the same pattern.
Dion Jones, chief executive of lender Instant Finance, said loan applications had fallen, but some of the requests for loans had changed.
‘‘We are getting requests for money for food, and that’s something we have never lent on,’’ he said.
Around a quarter of Instant Finance’s borrowers were beneficiaries, he said, but the company did not consider it moral to lend money for food purchases, or to make money off such loans.
Instead, it was directing customers to Work and Income for emergency assistance.
Instant Finance was urging all borrowers to keep making loan repayments but was not charging penalty interest or fees on the loans of those affected by the coronavirus economic turmoil.
Centrix and Illion had been working on ways to prevent reliable people who suffered economic effects of coronavirus from having their credit scores ruined. A reduced score can have longterm effects on people’s ability to borrow money at a reasonable price or switch power companies.
Bligh urged people to keep an eye on their credit scores, for free, through Credit Simple, and for owners of businesses to do the same.