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Here’s what most Brits used loans for in 2021

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New research from Evolution Money reveals that Brits have been taking out more loans over the past year than ever before.

Indeed, the lender has dubbed 2021 ‘the year of the loan’, with the number of loans taken out having increased by 41% year on year. But what exactly are Brits spending the borrowed money on? Let’s find out.

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What has happened to lending in 2021?

According to Evolution Money, the average value of loans taken out in the UK in November 2021 was £27,000. This is 33% more than in January 2021 and 100% more than in January 2019, when the average loan value was £13,000. 

The UK regions where most loans have been taken out this year include the Southeast (16%), the Northwest (15%) and Yorkshire (12%).

The region with the highest average loan value is Greater London (£29,727). This is followed by the Southeast (£24,305) and the West Midlands (£21,913).

Generation-wise, it’s the millennials who lead in terms of taking out loans, with 50% of 25-34-year-olds having taken out a loan in the last year.

The research also shows that more men than women took out loans this year (30% vs. 24%).

What are Brits spending loans on?

The survey shows that buying a car is the top reason for taking out a loan in 2021. One in ten (10%) of all those who took out a loan used the money for this particular expense. This translates to about 1.85 million Brits using loans in 2021 to buy a car.

Other top reasons for taking out a loan are as follows: 

Reason for loan

% of borrowers 

Estimated number of Brits 

To help with a home move 

6% 

1.11 million 

To pay for a qualification 

6% 

1.11 million 

For a holiday 

5% 

920,000 

For home renovations 

5% 

920,000 

 

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What do Brits need to know about taking out a loan?

According to Hannah Dearden, operations marketing executive at Evolution Money, accessing a loan is not something that should be taken lightly. It should be done in a responsible way.

However, she reckons that: “For those who do their research and are confident they can pay the money back, a loan can be a positive decision for people to make.”

So, how exactly do you decide whether taking out a loan is the right move for you? Asking yourself five key questions can help.

1. Is it a need or a want?

Consider your reasons for taking out the loan. More specifically, ask yourself whether you are taking out a loan to fund a need or a want? For example, if having a dependable means of transport is a requirement for your job, then purchasing a car can be viewed as a necessity, and taking out a loan to fund the purchase makes sense.

But if it’s something else, like a giant TV that you want but don’t really need, it may be wise to reconsider.

2. Do you really need it before you can save for it?

Even if something is a need, ask yourself whether it can wait until you have saved enough to buy it outright. That way, you can avoid paying loan interest.

3. What is the loan term?

Ideally, you want a repayment term that is long enough to keep your monthly payments low but not so long that you spend more in interest over the life of the loan.

4. How much will you pay in interest?

The interest you will pay will depend on a couple of factors, including the type of loan, your credit score, the amount borrowed and the term of the loan. Overall, you are likely to pay the least interest if you have a great credit score and if you choose the lowest repayment term possible.

5. Can you afford the monthly payments?

Are you confident in your ability to make the required payments? Or are you likely to struggle to make ends meet as a result of stretching your budget? If your honest answers to these questions suggest taking on debt is a bad idea, re-evaluate whether taking out a loan is the best course of action.

The post Here’s what most Brits used loans for in 2021 appeared first on The Motley Fool UK.

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