Affordable Credit

Examine why (some) people need a particular financial product or service, and the reasons why they might be unable to access it. 

Ben Drew

Affordable credit solutions, such as mainstream bank loans are not inclusive in the United Kingdom and their limited availability leaves the poorest people in a recurring cycle of destitution. In 2023, the average house price was roughly £286,000, which was an estimated 0.4% rise on the previous year (HM Land Registry, 2023). Roughly 10% of mortgage applications are denied annually, citing reasons such as poor credit history, employment status and insufficient funds (Alexander, 2023). This leaves people’s lives in the hands of landlords and creates a precarious position, because they are refused help. Mortgage loans are clear examples of credit offered by banks and highlights the need for this service, but it is more serious than not having the opportunity to purchase property. The difficulty of accessing a mortgage illustrates the accessibility of bank loans to people who are not usually in financial ruin, providing an apt comparison for other needs for affordable credit.

Almost half of UK adults say they would be unable to cover a cost of more than £300, without accessing funds from elsewhere (Financial Conduct Authority, 2020). Therefore, when an expensive emergency arises, nearly half of people would be reliant on financial support. Payment history and credit history are scrutinised just like a mortgage application, which usually would be significantly more money, with it being clear that low credit scores frequently lead to rejection in loan applications (Einav et al., 2013). This suggests that the amount is of less concern to the bank and more focus is given to chance of repayment. Those most in need of loans, will find

themselves in poor financial positions, making them a risk for loan repayments, therefore not being approved access to improve their situation (Money and Pensions Service, 2023). In other words, if you are in the lowest financial echelons of society you are not granted with the privileges of affordable credit to get yourself into a safe position.

Millions of people are left in the financial wilderness due to the tight restrictions on affordable loans, creating the perfect environment for a growing number of high-risk loan options. Payday lenders have a long-standing reputation for targeting the most vulnerable members of society, offering loan contracts that inevitably plunge their clients into further financial woes (Packman, 2012). In 2018, an estimated 1.7 million people were using payday loans, often to stay afloat, with those customers having no other choice but to sign a contract with interest rates reaching 1,200% APR (Financial Conduct Authority, 2019). Unsurprisingly, these levels of interest rates, leave already destitute clients in even worse predicaments, creating a cycle of borrowing (Atkinson & Overton, 2022). Unfortunately, for lots of people it is a choice between taking a high-risk loan or struggling to survive, with 20% of UK adults delaying investments in essential appliances because they simply cannot afford to (Money and Pensions Service, 2019). Simply put, financial exclusion forces people to fixate on the financial turmoil of the present and stops any chance of planning for the future, leaving them at a significant disadvantage compared to those with access to affordable credit options.

The impact of exclusion to affordable credit is detrimental, leaving people at risk of economic isolation for their whole lives. The financial impact on a person’s life and that impact on economic decisions is clear but focus must be on the stress added to people’s everyday lives simply because businesses refuse to help them.

The Money and Pensions Service commissioned a report in 2019, declaring that 9 million people experienced financial stress (Money and Pensions Service, 2019). These situations can easily escalate and exacerbate somebody’s feeling of isolation, depression and anxiety with the constant need to consider financial decisions with no hope of freedom (Dunn & Mirzaie, 2015). If someone is dealing with mental and financial burden, the chance of changing their situation is slim to none.

The problems of affordable credit highlight the low level of people’s financial literacy, who are not given the chance to learn skills that can help them survive. Financial literacy is not taught in schools and leaves the poorest members of society vulnerable, with a need to roll out schemes to school age children to provide them with the necessary knowledge to avoid the fate experienced by millions in a cycle of debt. There are existing schemes in the UK such as MoneyHelper but these must be extended much further to create lasting change (Money and Pensions Service, 2025). Addressing the younger generation is not the only answer, with lots of people already in a cycle of financial crisis needing help and it is a case of saving them rather than teaching them ways to avoid crisis. In these scenarios people in receipt of benefits or occupying low-income households, should be offered resources that teach of the dangers of payday loans but also offer reasonable alternatives.

Therefore, in an ideal world people will be taught skills to avoid ever needing to take loans and risks but before that is a mainstay in society, those suffering in the present need affordable support.

Bibliography:

Atkinson, A. and Overton, L. (2022) Financial Inclusion Annual Monitoring Report 2022, Financial Inclusion in the UK

Dunn, L.F. and Mirzaie, I.A. (2015) ‘Consumer debt stress, changes in household debt, and the great recession’, Economic Inquiry, 54(1), pp. 201–214

Einav, L., Jenkins, M. and Levin, J. (2013) ‘The impact of credit scoring on consumer lending’, The RAND Journal of Economics, 44(2), pp. 249–274

Financial Conduct Authority (2019) Consumer credit - high-cost short-term credit lending data, FCA

Financial Conduct Authority (2020) FCA challenges firms to review approach to consumer vulnerability, FCA

HM Land Registry (2023) UK house price index summary: April 2023, GOV.UK

Money and Pensions Service (2019a) Building the financial capability of UK adults – survey, Adult financial capability: building the financial capability of UK adults – Survey

Money and Pensions Service (2019b) Money and pensions service calls for retail banking sector ..., Money and Pensions Service calls for retail banking sector to promote customer financial wellbeing in products and services

Money and Pensions Service (2023) Who is declined credit, why, what is the impact, and how can, Financial Capability Strategy for the UK

Money and Pensions Service (2025) Moneyhelper | Money and Pensions Service, What is MoneyHelper?

Packman, C. (2012) Loan Sharks: The Rise and Rise of Payday Lending. Searching Finance Ltd.