A Third of UK Credit Consumers Struggle to Comprehend Credit Contracts
In a concerning revelation, a recent report by the UK's leading credit-building business, Loqbox, titled "How to Borrow Money," has highlighted a significant number of credit users at risk of financial difficulty due to a lack of understanding. The report, which gathered 1,000 responses from various regions in the UK, including Scotland, Wales, and Northern Ireland, and across all income brackets, reveals that 33% of respondents do not understand the meaning of 'annual percentage rate' (APR), and only 14% always read the small print when they borrow money.
The report sheds light on the current state of financial literacy among UK consumers, particularly younger generations, who are highly engaged with Buy Now Pay Later (BNPL) options. In the past year, 31% of all respondents in Loqbox's report had borrowed money, with almost half (49%) using credit cards, 35% personal loans, and 18% BNPL.
Women are more likely to borrow on credit cards, while men are more likely to borrow larger amounts of £6,000 and over, and are more likely to borrow on BNPL. Younger generations, particularly those aged 18-24, are experiencing the most financial stress in managing credit.
Tom Eyre, co-founder and CEO of Loqbox, emphasizes the importance of financial education for responsible borrowing. He states, "Understanding the terms of credit agreements is crucial for managing debt effectively. Our report shows that there is a significant need for improved financial literacy, especially when it comes to new digital consumer credit products like BNPL."
Loqbox has empowered over one million people to master their money and improve their credit scores with the UK's three main credit reference agencies: Equifax, Experian, and TransUnion. The company has created several smart personal finance tools to help people build their credit histories, with 88% of members who track their credit scores with Loqbox reporting improvements.
The report also reveals that only 25% of all respondents always consider whether they can afford repayments in the long term, and a staggering 69% don't understand what 'annual percentage rate' means. BNPL is most popular with people aged between 45-54, followed by those aged 18-24.
The Money and Pensions Service (MaPS) conducted a mapping exercise in 2024, revealing that financial education programmes reach about 41% of UK children and young people aged 3 to 24, with an annual spend of approximately £13.5 million and around 7.2 million young people reached. This demonstrates substantial provision, but also highlights gaps in financial education, especially for certain age groups or demographics. There is a national goal to increase meaningful financial education coverage for children and young people by 2030.
As the UK continues to embrace digital finance, it is crucial to ensure that consumers are equipped with the knowledge and skills necessary to make informed decisions about their credit use. Improving financial literacy, particularly around new digital consumer credit products like BNPL, is essential to prevent future financial distress.
- The report from Loqbox indicates a need for enhanced understanding of financial concepts like 'annual percentage rate' (APR) and financial literacy, particularly in relation to new digital consumer credit products such as Buy Now Pay Later (BNPL), which are increasingly popular among younger generations in the UK.
- A lack of awareness and understanding of terms and implications associated with credit agreements, as shown by the Loqbox report, highlights the importance of incorporating education on personal finance, including topics like 'annual percentage rate' and long-term repayment affordability, in educational and self-development programs to equip consumers with the necessary knowledge to make responsible borrowing decisions.
