Better referral for declined applicants

At the beginning of this year’s Debt Awareness Week, it was reported that 13% of adults had missed three or more credit or bill payments in the last six months.

Credit unions are used to seeing this. For example, between 1 January and 18 March 2023, 29% of borrowers assessed by NestEgg’s Decision Engine had missed two or more payments in the last 12 months. Interestingly, this fell to 27% in the same period, 2024. On average 20% of loan applicants have a default on file. At least six or more payments have been missed.

Insolvency Service data shows that 10,000 people entered insolvency in February. This is a rise of 23% on the same month last year.

Lenders using NestEgg’s Decision Engine between 1 January and 18 March 2023, saw 1.4% of applicants had been made insolvent during the last two years. This has remained steady at 1.3%, so far in 2024.

Figures stabilising, or even falling, may be a sign that the worst of the Cost of Living Crisis has passed. However, they demonstrate long-term debt problems for credit union applicants.

Importantly, these are averages. If we look at applicants being declined during 2023:

• 40% had missed two or more payments in the last 12 months
• 27% have a default on file in the last 12 months
• 2.5% had been made insolvent in the last two years

Improving outcomes for declined applicants

As higher cost lenders have left the market there are signs that more people are turning to illegal money lenders. Data from the Illegal Money Lending Team (2020), Centre for Social Justice (2021), Fair4All Finance (2023) suggests that 3 million people used an illegal money lender in 2023. Worryingly, this is up from 500,000 in 2020.

NestEgg’s broker platform provides tips for applicants who have been declined for loans. Tips relate directly to the credit file. For example, if someone is declined because of a recent default, the platform explains what this means, why it’s important and what can (or can’t) be done about it. After following tips, over time, declined applicants are more likely to be accepted for loans in the future.

However, it won’t be possible, or desirable, to turn all declined applications to accepts. A better outcome may be a debt remedy. Better referral for declined applicants is required. Applicants need to find timely advice before their situation gets worse.

Additionally, referral in the other direction is helpful. For example, people coming off Debt Management Plans (DMP) need to avoid high-cost credit and illegal money lenders. DMPs negatively impact credit score and make it hard to access credit. Fortunately, lenders on the NestEgg platform take a more sympathetic view. Borrowing from a responsible lender is a good way to rebuild a credit score.

Of course, referral is about more than providing an email link. Therefore, if you’re a provider of free money advice or related support services for those in problem debt, get in touch. We want to work with the sector to refer declined applicants for money advice and debt remedies.

Get in touch to discuss better referral.