Borrowing and spending at Christmas

Commentary | 15/12/23

At this time of year, there are always stories about how people plan to pay for Christmas. Costs can quickly add up between presents, family expectations, extra travel, and hosting. Combined with the cost-of-living crisis currently facing many, it can be an expensive time of year.

This year, different organisations have researched to explore our Christmas spending. New data from the Money and Pensions Service (MaPS) shows that one in four (26%) will likely borrow or use credit for upcoming holidays like Christmas. Consumers were planning to use different methods of borrowing, with credit cards being the most popular at 52%.

The FCA also polled the public about their Christmas spending plans. They found that many parents felt pressured to spend, with over a quarter (29%) of parents with young children having already borrowed or intending to do so. The regulator has said that this pressure may mean more individuals are susceptible to loan fee fraud (when a customer pays for a loan they never receive). Therefore, the FCA runs its loan-free fraud campaign, which you can learn more about here.

This all raises important questions about borrowing and lending responsibly, but also access to credit. Is it right to borrow? Can the applicant afford it? Will they be tempted to look elsewhere if they cannot access regulated credit? Will they become a victim of fraud?

Firstly, no one should feel pressured to spend. Taking on more borrowing than manageable is not a good idea. Lenders must ensure any borrowing is suitable as part of their lending assessment.

When individuals do feel pressure, they might exhaust the options open to them. We know, for instance, that consumers of alternative credit do not have many lines of credit available. This is where the likes of the FCA’s loan free fraud campaign and the Illegal Money Lending Team’s Stop loan sharks message become more critical.

It is essential that Christmas borrowing does not push people into the hands of fraudsters or loan sharks. Illegal lenders will use this time of year to prey on the vulnerable. Consumers should always use a regulated firm to borrow so they are protected if anything goes wrong. This can be checked on the FCA’s register, and if someone suspects they have been a loan shark victim, this can be reported here.

This returns us to the central argument about access to credit. We know that a lot of borrowing is cyclical. People take credit to cover significant life events and pay off in the coming months. It is not uncommon to borrow for a holiday like Christmas, but it needs to be manageable and not push people into the unregulated world.

We need to remember that without access, the demand remains. There needs to be a varied credit market to serve the needs of different consumers to help them manage their finances.