High rejection rates and cumbersome processes deter borrowing
Younger UK consumers are encountering significant obstacles in obtaining credit amid rising cost-of-living pressures, research conducted by payment services platform Tink has found.
The study involving 1,000 UK borrowers has revealed that a striking 78% of individuals aged 18 to 34 have experienced loan application rejections. The main reasons for disqualification include a lack of substantial credit history (12%) and difficulties in demonstrating financial history (11%).
The study also highlights a prevalent issue of loan application abandonment among younger demographics, attributed to the cumbersome nature of traditional application processes.
Approximately 22% of respondents in the 18 to 34 age bracket have forsaken a loan application in favour of another lender due to the complexity of the process. Furthermore, 20% admitted to having the necessary documents but opted to abandon the process due to the requirement of manual submission, such as printing and posting documents.
Manual #lending processes impact operating costs the most, according to our data:
— Tink (@tink) March 5, 2024
🧮 25% of lenders surveyed say document validation is their largest cost
🕰️ 32% say traditional income verification takes the most time
Risk decisioning tools can help: https://t.co/Jfv5nuMVYg
Supporting this, a Tink survey of 200 UK lenders found that 36% observed the highest drop-off rates during manual income verification steps. This stage, along with document validation, is not only time-consuming but also represents a significant cost to lenders, with 32% and 25% respectively citing these as major challenges in their risk decisioning process.
There is, however, a strong interest among younger borrowers in leveraging data-driven decision-making to streamline loan applications.
Around 40% of surveyed 18- to 34-year-olds are open to allowing lenders access to their bank transaction data if it simplifies the process and enhances their chances of loan approval. Additionally, 57% are in favour of receiving loan offers customised to their financial situations, indicating a demand for more adaptive lending practices.
Lenders also recognise the benefits of refining the loan application process, with 78% of those surveyed believing reducing application friction is key to gaining a competitive edge, while 77% stress the importance of enhancing risk decisioning models for a more accurate assessment of applicants’ finances.
“Our research highlights a clear access issue among younger generations trying to borrow,” said Jack Spiers (pictured), banking and lending director at Tink. “Not only are a significant amount wrestling with cumbersome application processes, they’re also being rejected for loans based on factors that suggest blinkered financial assessments.
“It is important lenders are harnessing data-driven risk decisioning solutions to offer fair, accurate affordability checks, while also removing the friction associated with manual application submissions. And it’s not just benefiting the end user. Adopting these models can help lenders too – boosting customer acquisition through improved success rates, while reducing operational costs.”
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
