Loan jump may indicate shift in popularity

New figures may suggest loans are becoming more popular as a form of consumer credit as an alternative to other ways of borrowing.

Data from the Finance and Leasing Association for January revealed the number of loans its members had issued in the first month of 2011 was 27 per cent more than a year earlier.

And it was also the third successive month in which the number of loans had risen year-on-year, with the tally over this period being up 29 per cent on the same trimester in 2009-10.

Such a finding may in itself suggest consumer credit as a whole is on the up, but there were significant differences between the rise in loans and the increase in other forms of borrowing.

For example, in January the level of car finance was 16 per cent up on a year before, while credit card lending had only risen by three per cent and storecards were down by 18 per cent.

This may suggest that while consumers are still borrowing, they are increasingly moving away from plastic and towards loans, with one-off borrowing and regular monthly repayments, rather than products on which the level of debt can go on rising.

Sheer cost may be another enticement to go for loans. Recent research by uSwitch found the cost of borrowing £7,500 is cheaper than it was a few months ago and calculated those switching loans from an older deal to one of the new, more competitive ones could save an average of £105 in interest by doing so.