Irish borrowers turn their backs on banks - but flock to credit unions
Just 9pc of adults took out a personal loan over the last year and, of those who did, 60pc obtained theirs from a credit union, according to the results of a new study seen by the Sunday Independent.
The study, commissioned by the Competition and Consumer Protection Commission, also reveals that consumers aged between 25 and 34 were the most likely to take out a loan in the last 12 months (16pc), with car finance (41pc), holidays (25pc) and home improvements (20pc) as the top three reasons.
The average loan amount was just under €5,000, typically paid back over three years.
The face-to-face nationwide survey of 1,000 adults conducted last May by market research firm Behaviour and Attitudes, is understood to be the first serious attempt to independently gauge the market for personal loans since the recession ended but also amid a strong marketing and advertising push by both banks and credit unions to attract new business over the past year.
"There's been an awful lot of advertising by the banks for personal loans at the moment and it occurred to us that given the recession over the last few years very many people have probably never taken out a personal loan before as their circumstances wouldn't have allowed them," said Fergal O'Leary, CPCC's director of communications and consumer help.
But with only 9pc of adults taking out loans, that's surely an indication of how averse we still are to taking on debt?
While Mr O'Leary says the CPCC wasn't sure what to expect, given the lack of any robust figures up to now, we know that at least one in 10 of us will take out personal loan in the next 12 months, so "it sounds about right", he said.
Kevin Johnston, chief executive of the Credit Union Development Association, agreed the 9pc figure seems low "but it must be remembered that the consumer loan market has declined by approximately two-thirds since the peak in Sept 2009". It strongly suggests that people are still wary about taking on debt and consumer confidence has not fully returned, he said.
Still, the survey is clearly good news for the credit union movement.
"Credit unions have traditionally had about one-third of the Irish personal loan market - and with membership of credit unions on the increase for well over a year now, it's not really surprising that many more are choosing to use their local credit union when it comes to loans," said Mr Johnston.
Mr O'Leary acknowledged that many consumers have more trust in credit unions than in banks - but added that consumers also realise that their rates are "very competitive" for those with savings.
Simon Moynihan of price comparison site Bonkers.ie also said the results weren't surprising.
"It is only this year that we have seen banks actively promote personal loans. Feedback we have received up to this year suggested that obtaining a loan from the main Irish banks had been very difficult and the application process long and arduous."
He added that credit unions are capped in the amount of interest they can charge - at 12.68pc APR (annual percentage rate) - with some charging far less than this.
"It compares favourably to some of the main banks, so a combination of competitive APR (annual percentage rate) and availability of credit could go a way to explaining why so many people have chosen credit unions for the lending needs," said Mr Moynihan.
Some banks, and also the Irish Banking and Payments Federation, were reluctant to comment when approached, but a spokesman for recent entrant KBC Bank - which is offering discounted rates for home improvement loans and 2pc off standard loan rates for current account customers - says that there has been "very positive feedback to our overall proposition".
Bank of Ireland pointed to the reduction in its lending rate of 7.5pc APR for "a large proportion" of its customers and with no requirement to hold savings to back the loan, a spokeswoman said. It has also shortened the time to draw down from application to three hours for existing customers while other applicants would get next-day approval.
Despite the high awareness of what credit unions are offering, the survey shows that almost half (46pc) of borrowers did not do any research before taking out their last loan, a figure Mr O'Leary concedes is "high".
Of the remaining 54pc who did undertake some research into best rates available, 25pc consulted family and friends, while 20pc compared loans online.
The research showed that 57pc of borrowers did not know the APR on their loans.
Those who don't bother shopping around might well end up with a competitive-enough rate, "but there has to be a good chance that that isn't the case", he said.
It's natural enough to be more focused on what you are getting for the loan, rather than on the loan itself.
"We focus on the thing we're buying, as opposed to how we pay for it," said Mr O'Leary, adding that previous research on switching has shown that people who do make the effort to compare do report back that they found it easier than they expected.
Sunday Indo Business