End Of Unsecured Loans Is Coming

Within three years, unsecured loans may soon be a thing of the past for the majority of Brits. Increased defaults and increasing regulation means that it is no longer profitable for lenders to lend without security. 

The FCA (Financial Conduct Authority) started in 2014; every single payday lender has since left the market, Sunny.co.uk being the last old time lender to bow out in June. Amigo Loans looks like it is about to stop lending in the guarantor loan market. Add to that; there isn't one single non-bank lender in the UK that is currently making a profit.

In 2014, putting lenders out of business was something that the FCA was proud to predict. They said that there would most likely be as few as five payday lenders left. Six years later, 100,000 jobs lost from the industry and the FCA must be over the moon. 

Where does this leave subprime borrowers?

As it stands, Subprime borrowers and those with a poor credit history are the ones who are going to lose out. All their roads to legal short term unsecured credit have been closed. They now have 3 bad options to choose from; 

1) The first is that they apply for credit cards. Credit cards are more expensive than unsecured loans because they roll over endlessly. Before the FCA got involved, loans would only rollover 3 times.

2) If they have assets, they can seek out local pawnshops. Just like there was in 2008, there are reports of a rise in pawnshops lending with the security of assets. Pawnshops were quite common in the UK before private unsecured credit landed on the internet in the early 2000s. Pawnshops will typically lend on a loan to value (LTV) rate of around 25%. If someone has an asset worth £100, they will generally be able to lend around £25. This could be something that poor people are forced to use, but it is risky because borrowers face losing their goods if loans are not repaid on time.

3) Loansharks. There is a worrying increase in the reported cases of Loansharking, especially in ethnic communties. Once the job of Councils to Police, Councils are advising that they no longer have the resources to monitor and prosecute Loansharks. In effect, giving loansharks a free run in their communities.

None of these scenarios is great. Before The FCA started out on their virtue signalling attack on the legal subprime credit industry, they were warned multiple times that the result would be one or more of the above outcomes. They chose to ignore all the dire forecasts. Now with 100,000 jobs lost, fraud and scams running out of control, hundreds of millions in revenue and taxes lost. They may have to face the reality that they screwed things up.