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High-interest rates prevent people from getting loans — TransUnion

High monthly payment is among the top reasons Filipino consumers reject credit offers. This is one of the findings in credit and insights company TransUnion’s latest study on financial inclusion.

In the Philippines, TransUnion’s survey finds that 32% of underserved consumers are willing to expand their recurring credit if they had lower payments. The high-interest rate discourages the unserved (22%) and underserved (36%) markets from availing themselves of loans. The inability to pay back loans or incur debt is cited as the primary reason for the unserved (53%) and underserved (52%) Filipinos surveyed didn’t take on more credit, or any credit in the case of the unserved consumers.

The unserved consumers are those who never availed of a credit product while the underserved may have had credit but not significant enough to make them active participants in the credit market. TransUnion surveyed about 2,000 Filipino consumers between Dec. 15, 2021 and Jan. 5, 2022.

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“It’s clear that consumers, even those with little or no credit experience, expect affordable interest rates and monthly payments, along with great consumer experiences,” said Pia Arellano, regional president and CEO of TransUnion Philippines.

Apart from the fear of inability to pay their loans, survey respondents also cite the difficulty of availing of loans. A lengthy approval process was cited as a factor in credit offer rejection for 17% of unserved and 8% of underserved consumers in the Philippines. In addition, 16% of unserved and 13% of underserved consumers said they rejected credit offers because they found alternative funding or received a better offer.

Credit ecosystem

“As the cost of credit can often be a deterrent to bringing more consumers into the credit ecosystem, it’s important for financial institutions to develop and offer tailored credit products and services that address these concerns and needs. Furthermore, a seamless consumer experience is a key consideration for lenders when reaching out to unserved and underserved consumers,” Arellano said.

The effects of the COVID-19 pandemic with people losing their major or only source of livelihood forced them to borrow money or take out loans. The survey found that this may continue in the next three years with more than half of both the unserved and underserved saying their need for credit will increase during that period.

For Filipino respondents who have existing credit, the survey found that 49% of underserved consumers were satisfied or extremely satisfied with their current amount of credit, while only 28% of unserved consumers, those with no traditional credit currently but who may be borrowing from alternative sources, had the same level of satisfaction. Additionally, 21% of unserved consumers were not satisfied at all with their level of credit while only 11% of underserved consumers expressed dissatisfaction.

“Promoting financial inclusion starts with gathering a better understanding of the different nuances between the unserved, underserved, and served populations and what makes them tick,” Arellano said. “For example, what drives unserved consumers to apply for credit, and why underserved consumers may need a different credit product, may vary greatly. Lenders can use these insights to better meet the unique needs of these consumer segments, and to educate these unserved and underserved segments on ways they can build and improve their credit profiles. In doing so, lenders can play a critical role in helping more consumers become actively engaged in the credit system and promoting greater financial inclusion.”

The global study included an analysis of consumer credit behavior in Canada, Colombia, Hong Kong, India, South Africa and the United States, as well as an online global survey of consumers in the Philippines, Brazil, Canada, Colombia, the Dominican Republic, and the United States.