What are consumer finances?
Consumer financing is the way in which customers can pay for a product in small monthly instalments, for a definitive time period. Retailers offer customers with consumer financing options to increase their affordability. The customer can choose to pay these instalments either through a loan or use their own funds. This type of a payment option also makes sense when you want to purchase something expensive, but do not want to exhaust a lot of your money paying the entire amount upfront.
How does COVID-19 affect consumer finances?
Over 13% of British adults have witnessed a decline in their income. This is directly affecting their spending behaviour since people feel that they’re unable to keep up with their financial commitments. Over a quarter of Britons have put a pause on any extravagant purchases, with over 14% delaying significant life events. This change in consumer behaviour and fall in retail transactions is bound to alter credit demand. People are having to tap into their savings to pay for essentials, which implies that the bounce back to normalcy in case of retail purchasing will be slow.
What are the changes in credit behaviour?
After the Coronavirus pandemic hit the UK, there was a steep decline in credit card and loan borrowing. New lending plummeted by £5.4 Bn, whereas credit card spending declined by 0.3%, on a year-on-year basis. As a result of the payment freeze on loans and credit card payments, bank repayments contracted by £1.3 Bn.
While 38% of Britons spend decent money only on stocking essentials, 25% of the severely affected Britons are decreasing their overall expenditure drastically. So it is safe to conclude that people are refraining from making or financing any extravagant purchase, given the current circumstance.
I financed my product, but I can’t afford to repay right now…
If you financed your purchase in the past and are feeling overwhelmed by repayments now, a good idea will be to agree to an arrangement with your creditor or retailer. You can request a payment freeze or an arranged overdraft of up to £500, which will be free of any interest. The last date to apply for a payment freeze is October 31’ 2020.
What guidelines has the FCA set for people experiencing a payment crisis?
Ever since the Coronavirus Pandemic started, the FCA has been actively involved in mitigating financial issues faced by people. However, it is in the best interest of people who can afford to repay, to resume their payments and get rid of their debt. Following are some guidelines put together by the FCA to help people burdened with payments, to sustain themselves:
- Companies can contact customers towards the end of the payment freeze period. By contacting customers they can check if customers can afford to resume repayments. They can then agree to an arrangement for all the missed instalments.
- People who still feel overwhelmed with payments, can approach companies and settle an agreement wherein the company reduces or freezes the repayment for 3 months until customers bounce back to normalcy.
- It is in the best interest of companies to clearly mention if they provide payment deferrals, on their websites or catalogues.
- Companies may charge interest even during the 3-month payment freeze period. If you feel that you cannot bear this expense, contact the company. Discuss and agree to an arrangement to resolve this issue.
- The payment freeze requested owing to financial hardships due to the pandemic will not have a negative impact on your credit report. Keep in mind that there are other factors that also come into play while assessing a person’s creditworthiness.
- Companies can’t charge you money for granting a payment freeze.
The joint measures of the UK Government and FCA have so far been helpful in alleviating people’s worsening financial conditions. However, people are still apprehensive about spending money as the pandemic has instilled an unforeseen fear in their minds. The road to normalcy is filled with obstacles as people have drastically changed their spending habits. Although saving money is a habit Britons should’ve assimilated and applied years ago, it is imperative for people to spend money to restart economic growth.