Generative Data Intelligence

How Fintech is Helping Consumers with Rising Rates and Financial Challenges

Date:

In recent years, there has been a continual rise in base rates, which began in

December 2021
and is expected to continue into 2024. At first glance, these increases appear as calculated policy decisions designed to slow down demand for goods by increasing the cost of borrowing whilst incentivising people to save. However, in the real world, these changes have difficult implications, especially for those already entangled in debt. 

The Impact on Consumers

When base rates rise, it means that borrowing costs, including the interest rates on credit cards, mortgages, and other loans, also rise. For anyone with variable-interest loans or credit card balances, monthly payments go up, and this financial strain can lead many to a tipping point. 

For those already in debt, increasing monthly payments can sometimes cause them to take on more debt and can create a vicious cycle that is hard to break free from. According to The Money Charity, in 2023,
the average Briton owes £3,855 in unsecured consumer debt

Data also shows that when including mortgages, the average personal debt in the UK is higher than the average yearly income of UK adults (or, more precisely, accounts for 108.4% of their annual earnings.

New Financial Management Tools

This is where fintechs have an important role to play – with new platforms helping with debt consolidation and budgeting. 

For debt consolidation, ClearScore can merge various high-interest debts into a singular, more manageable loan, users can potentially score a lower interest rate and make just one monthly payment. This not only simplifies someone’s debt scenario but can also save them substantial sums over the lifespan of the loan.

While budgeting apps were once seen as tools for the financially conscious, in this era, they are proving indispensable for a broader audience. One frontrunner, Emma, has a user-friendly interface that aggregates all financial accounts and offers users a panoramic view of their financial health, with features such as tracking spending, setting budgets, and receiving real-time notifications and insights.

When Creditors Humanise Debt Repayment 

Creditors have also started to become more innovative. With the rise in base rates pressuring consumers, it’s in the best interest of lenders to ensure that their customers remain solvent and can manage their repayments. 

Payment holidays, which offer temporary respites from payments during financial crunches, can help. While this does mean elongating the loan term and possibly accruing more interest, it provides breathing space to those struggling to keep up with their rising monthly payments. 

Offering free debt advice can also go a long way in fostering trust and goodwill. A creditor that assists its customers in navigating their debt is not just building a brand reputation – it’s also improving its chances of being repaid.

In conclusion, the recent rising base rates have undeniably strained consumers and made the financial landscape more complex. Yet, fintech platforms and creditors with innovative approaches are stepping up, offering vital tools to navigate these challenges. They are equipping individuals with essential tools to build their resilience in this environment, demonstrating how innovation and collaboration can be key pillars in difficult times.

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