Pricing Strategies in the UK Personal Loan Market 2007

Published by: Datamonitor

Published: May. 7, 2007 - 27 Pages

Table of Contents

DATAMONITOR VIEW

CATALYST

SUMMARY

ANALYSIS

Price remains the acquisition weapon of choice in the UK unsecured personal loan sector

Price is a key product differentiator for both lenders and customers

Consequently, the average price of an unsecured loan has fallen considerably

Indeed, intense price competition in the UK unsecured personal loan market has led to a significant fall in average prices

However, lenders are adjusting their pricing models to a difficult lending environment

Rising personal debt has dealt a big blow to lenders' acquisition and profitability model

Consumers are increasingly resorting to debt solutions as they fail to keep up with repayments

Lenders' profitability has been affected significantly, as many consumers have started to default on repayments

It is therefore hardly surprising that many unsecured providers are adapting their acquisition and pricing model to reflect changes in the lending environment

Lenders' pricing models are changing as lenders are adapting their acquisition models

Will we see more lenders focusing on profitability rather than just increasing market share?

The great majority of unsecured loan providers practice a risk-based pricing model

Personal pricing has emerged in the last year or so

Furthermore, there are other examples where lenders are designing their pricing strategies to increase profitability

Going forward, pricing will remain aggressive but profitability will be equally as important, if not more so

APPENDIX

Supplementary data

Definitions

APR

Balances outstanding

Bank of England base rate

CAGR

Consumer credit

Gross advances

IVAs (Individual Voluntary Arrangements)

Methodology

Further reading

European consumer credit reports

UK consumer credit reports

UK consumer credit briefings

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: Typical interest rates offered by a sample of unsecured personal loan providers, Dec 2005 and March 2007 (Table 1 of 2)

Table 2: Typical interest rates offered by a sample of unsecured personal loan providers, Dec 2005 and March 2007 (Table 2 of 2)

Table 3: Unsecured personal loan providers' pricing strategies, March 2007

Table 4: Typical APR charged by a sample of lenders at branches and online, March 2007

Table 5: Typical APR for online loans from a sample of parent companies and their direct subsidiaries, March 2007

Table 6: End month weighted average interest rate on a £10,000 and a £3,500 unsecured personal loan and the base rate, Jan 2001 to March 2007 (Table 1 of 3)

Table 7: End month weighted average interest rate on a £10,000 and a £3,500 unsecured personal loan and the base rate, Jan 2001 to March 2007 (Table 2 of 3)

Table 8: End month weighted average interest rate on a £10,000 and a £3,500 unsecured personal loan and the base rate, Jan 2001 to March 2007 (Table 3 of 3)

Table 9: The differential between the base rate and the average interest rate of a £10,000 and £3,500 unsecured loan, January 2001 to March 2007 (Table 1 of 3)

Table 10: The differential between the base rate and the average interest rate of a £10,000 and £3,500 unsecured loan, January 2001 to March 2007 (Table 2 of 3)

Table 11: The differential between the base rate and the average interest rate of a £10,000 and £3,500 unsecured loan, January 2001 to March 2007 (Table 3 of 3)

Table 12: Number of providers split by various typical interest rate brackets, December 2005 and 2006, March 2007

List of Figures

Figure 1: Interest rates in the unsecured personal loan market are dynamic, January 2001 to March 2007

Figure 2: The differential between the base rate and the average interest rate of an unsecured loan has fallen over the years, January 2001 to March 2007

Figure 3: The majority of lenders offer a typical interest rate below the seven per cent mark, December 2005 and 2006, March 2007

Figure 4: The average UK adult owed £4,522 in unsecured personal debt as at the end of 2006, 2002-2006

Figure 5: Both the number of IVAs approved and bankruptcy orders have risen significantly since 2005, 2002 and 2006

Abstract

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