The Emergence Of The Unsecured Lending Industry In The UK

A ‘secured’ loan is when you offer an asset owned by you as a security against the borrowed money. On the contrary, when you borrow money without any guarantor or security, you are taking an ‘unsecured’ loan.

Over the past decade, the entire UK has witnessed a revolution in the unsecured lending industry. The borrowing market has been taken by the storm with these online lenders.

Be it loans for unemployed or for the people preferring no credit check loans, these lenders have flooded the market with borrowing options for all types of applicants.

The disproportional increase of wages and costs

Consider this for an example.

‘An average full-time worker saw a 27% increase in wages since 1999 in the UK. Compared to this, the price of a house in the UK, alone has increased 284% since 1999, and 60% since 2014.’

With this disparity between wages and prices, an average citizen has to work twice as hard to cope with the increasing costs.

Rising living costs and disproportionate rise in wages leads people to borrow money for making both ends meet.

According to the BBC England Data Unit, the regions with the lowest increase in the pay of full-time workers witnessed the largest increase in unsecured lending. Talking about numbers, more than 25% increase in online personal loan lending was recorded in the period of 2013-2017.

The preferred switch to FinTech, leaving behind the traditional sources

High denial rates, exorbitant additional charges and bureaucratic red tape on loan applications are the main reasons why traditional loans are attracting negativity from the common man.

It is human psychology that financial troubles are not expected to be entertained by tedious and lengthy procedures. The banks are more interested in securing their own money against bad debts, and severely reluctant to approve applications with abysmal credit scores.

FinTech industry fills this niche in the lending market. It has opened doors to all types of borrowers, ignoring their employment and credit score status.

The direct lenders in the UK brought a storm in the financial market with them. Every citizen watched with dilated pupils what this new technology had in store for them. And they loved what they found.

The future of the digital financial market across UK
In 2016, 427 million borrowers went to a local UK bank asking for a loan. This is in contrast to a whooping 895 million online logins for loans through direct lenders.

The key attractions of short-term unsecured lending are transparency, speed, comfort, reliability and affordability. No one wants to wait for long periods to know if an approval would come through. People are weary of excessively long procedures and documentations involved in the traditional borrowing.

While the world is rushing towards a technologically advanced platform, no one wants to get stuck to the conventional methods that are more time-consuming.
The financial market has been a spectator of the wave of unsecured lending taking over the masters. This trend is nowhere to die down in the near future.

The expansion of unsecured lending from table to hands
It first started with a website, and has now traveled to mobile phones. Earlier it was only possible to apply for a loan through lender websites. It has since then been made possible to be done through smart phones via mobile apps and even texts.

A person can be in the middle of just anywhere around the world. A smart phone is all that is needed to borrow money right at that instant. Just plain simple text messages or a few clicks on the mobile application, and the loan amount is credited the applicant’s bank account within a few hours.

The market reaction and crisis

With the increasing bent towards this advanced and speedy alternative to credit, the banks and other lending sources have awakened to the demand of the hour. Losing applicants is losing business. They have realised this and have started working on competitive models.

The financial market is expected to keep progressing and expanding in the following years. The statistics dictate an unmet demand of the borrowers. The curve is nowhere to die down in the near future.