Over the last year, the world has changed much from what we knew before due to the impact of COVID-19. Whilst many people have seen huge disruption to their lifestyles and working habits, many industries have felt the effects of this. With lots of closures to shops and business and an increase in online activity due to customers having nowhere else to turn, how has this affected the finance industry in particular? Here we look at some of the main impacts experienced in this sector.
Some Lenders Stopped Lending
Amid lockdown restrictions keeping consumers at home, those looking for options to borrow money have had to seek online alternatives to the traditional banks. With the world going through much disruption, there were still many aspects of life that could cause personal disruption, including those unexpected expenses. If you relied on your car to get to work as a key worker, for example, and you unexpectedly needed urgent car repairs to get you back up and running, there was still a need to have access to payday loans UK lenders to provide emergency cash. Similarly, if you had other urgent expenses aside from your essential outgoings that you didn’t have the savings to cover, this type of online borrowing was still an available option, especially after traditional lenders put restrictions on their lending practices to save money, seeing a 59% reduction in loans between April and June 2020.
In an effort to help consumers, payment holidays were introduced by the UK government to ease the pressure of making essential mortgage, credit card and loan payments if you were on a reduced income. This helped consumers who were furloughed, made redundant or struggling financially in general temporarily halt payments which saw as many as 1.8 million people by July 2020 do so on their mortgages. A further 1.18 million and 828,000 did the same on their credit cards and loans respectively. Whilst applying for a payment holiday ended at the end of March this year, there are still many that have existing payment holidays in place until the end of July 2021, meaning the finance industry has seen a huge reduction in repayments over the last year.
Government Loan Schemes
Due to a reduction in income, Recovery Loan Schemes were introduced by the UK government to help all UK businesses, with the Coronavirus Business Interruption Loan Scheme (CBILS) allowing up to £5 million to be borrowed. This meant term loans, overdrafts, asset finance or invoice finance could be offered by lenders to struggling small or medium-sized enterprises (SMEs). Lenders were encouraged to confidently start offering borrowing options again thanks to this government-back guarantee. The scheme closed for new applications at the end of March 2021 but saw 1.6 million businesses benefit from recovery schemes like it since March 2020.
Whilst the last year saw a huge challenge for banks and personal finance companies, 2021 should continue to see a more positive outlook. Aided by the vaccination programme and the roadmap in place to lift remaining restrictions, consumer confidence should return and finance companies will experience better fortunes ahead.