Tuesday, December 18, 2007
Ever-greater numbers of borrowers are turning to expensive personal loans after being spurned by high-street lenders, according to Britain 's leading consumer credit company.
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Provident Financial, which specialises in lending to "sub-prime" borrowers with tarnished credit histories, said business is booming as "mainstream lenders tighten their lending criteria and retreat from the non-standard consumer credit market".
Banks have tightened up their lending criteria after fuelling a consumer binge with easy credit over the past few years, with the ongoing credit crunch further reducing their appetite for higher-risk customers.
Provident chief executive Peter Crook said: "The banks are now top-slicing. They are taking better-quality risk and declining those with marginal credit histories. When times are good, banks might take these types of people, but not at the moment. In the past few months, we've experienced an improvement in the flow of business due to the wider market issues.
"Customer numbers fell from 2002 to 2005, reflecting the mature market." At the end of November, numbers were "up 3.8pc on the prior year".
The banks' retreat from the market came as bad debt levels on credit cards and personal loans hit a peak earlier this year. It raises the prospect of borrowers paying more for their loans.
Customers typically pay £168 over 56 weeks for a £100 Provident loan. Provident's credit card, Vanquis, has an interest rate of 39.9pc against a top rate of 29.9pc at most banks. The higher rates of interest reflect Provident's practice of lending and collecting door-to-door through agents. It manages its bad debt exposure by capping the amount it lends. Vanquis customers start with just £250, compared with some credit cards that offer lines of credit of up to £10,000.
Mr Crook said the high-street banks' move away from the market had also helped Provident's impairment charge, which grew "at a lower rate than both revenue and receivables during the second half". He said the improvement was driven by customers being of "better quality than we had 12 months ago".
Provident, which demerged from International Personal Finance in July, has £350m of funding secured until 2010, which is enough "to pay for all our planned growth to 2010", Mr Crook said.
Source: http://www.telegraph.co.uk/money/main.jhtml?xml=/money/
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