It may be around three years now since the start of the COVID lockdowns but, in financial terms, they are still having a huge impact on many of us. Covid affects almost 38% of people falling in to debt; majority of the credit card holder – Credit card payments are still in due.
That’s not surprising considering how many people lost their jobs during the pandemic when many businesses, forced to close for months on end, found themselves shutting up shop for good. Those companies worst affected were in the hospitality sector (hotels and restaurants) and Leisure and Culture (gyms, clubs etc).
This was evidenced by data published by short term credit lender Wonga in the marked decline of applicants from such sectors, in addition to individuals working in business consultancy, cleaning, leisure, and publishing. This was perhaps due to the fact those working in these industries were worried they would lose their job and couldn’t pay the loan back. Or, they had already been made unemployed and didn’t think they’d qualify for borrowing.
In fact, the company saw an increase in loan applications during COVID from people working in what were deemed ‘essential services,’ in sectors such as health, electricity, mining, legal services, and transportation.
In other words, it wasn’t just people working in the worst-hit industries who suffered financially during lockdown. Covid managed to wreak havoc on the personal finances of millions in many different ways. Perhaps a self-employed partner’s income had drastically fallen ill, or families were forced to dip in to already-meagre savings to cover higher food bills for students and young people forced to once again live at home.
COVID led to 38 per cent of sufferers falling in to debt
The upshot is, around 38 per cent of those affected by coronavirus have fallen into arrears on bills or borrowed to make ends meet, according to a report by the debt charity Step Change. In addition, 2.87 million people affected by coronavirus are at risk of falling in to long- term debt.
The most common type of debt is credit card repayments (with eight per cent of those affected falling behind due to Covid). Council tax is next, followed by loan repayments, mortgage problems, then trouble paying utility bills, car repayments and telecoms. In the midst of the pandemic the average debt was £2,579 – around £700 more than the typical debt of £1,844.
Interestingly, the report found that having a low income didn’t necessarily mean higher debt. Analysts believed that was down to fewer financial commitments. That translated into people taking out fewer loans with the result that those who were applying for credit were better off than before the pandemic (or, at least, they had fewer debt).
Providers shortening the terms of their agreements
At the same time loan companies were protecting both themselves and customers by shortening the terms of loans. This meant people wouldn’t rack up large sums of interest over unacceptably long periods, forcing them into debt they had almost no hope of paying back.
Applicants these days are also asked for more identification, as well as more recent payslips and evidence of longer employment terms. The amount of credit available has also been lessened. The overall aim is to have more stability so that any future crises won’t have the devastatingly financial affect for many that COVID wrought.
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