Some poorer people are seeking loans to stock their pantries.

ROSS GIBLIN/STUFF

Some poorer people are seeking loans to stock their pantries.

People with precarious financial lives have been rushing to get high-interest loans as the economic impact of coronavirus hits home, including seeking loans to buy food.

There had been a 23 per cent increase in applications for personal loans in the past five weeks among people with credit scores of 299 or below, said Keith McLaughlin, chief executive of the Centrix credit reporting agency.

Credit scores run from zero to 1000, and scores of below 400 indicate people with a history of missing loan repayments, or payments to the likes of power companies.

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There had been a 12 per cent increase in loan applications for people with credit scores of 300-399.

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McLaughlin said better-off people with higher credit scores had been making far fewer applications for loans.

“Consumers with high scores are no longer as active whereas credit demand in low scores segments remains strong,” McLaughlin said.

As a result mortgage inquiries had fallen sharply. Applications for car loans had fallen too, as had credit card applications.

Loan applications have plunged as coronavirus uncertainty sppoks borrowers. But applications for loans among people with precarious financial lives have increased.

TURHAN YALIN/123RF

Loan applications have plunged as coronavirus uncertainty sppoks borrowers. But applications for loans among people with precarious financial lives have increased.

Overall demand for loans had dropped 14 per cent in March compared to February as people decided not to borrow as the full impact of the coronavirus crisis became clear, Centrix data showed.

The decline was driven by people with the highest credit scores deciding not to borrow, with declines in applications for loans of 5 per cent among people with credit scores of 700-799, 13 per cent for people with scores of 800-899, and 18 per cent for people with scores of 900 or more.

“What tends to happen is when there is a confidence issue, or uncertainty, people don’t make big decisions. Coronavirus is that with bells and whistles on,” said Simon Bligh, chief executive of credit agency Illion, which had recorded the same pattern.

In times of uncertainty, many people chose not to borrow, said Simon Bligh, chief executive of Illion.

SUPPLIED/DUN AND BRADSTREET

In times of uncertainty, many people chose not to borrow, said Simon Bligh, chief executive of Illion.

Dion Jones, chief executive of lender Instant Finance, said loan applications had fallen, but some of the requests for loans had changed.

“We are getting requests for money for food, and that’s something we have never lent on,” he said.

Around a quarter of Instant Finance’s borrowers were beneficiaries, he said, but the company did not consider it moral to lend money for food purchases, or to make money off such loans.

Instead, it was directing customers to Work and Income for emergency assistance.

Instant Finance was urging all borrowers to carry on making loan repayments, but was not charging penalty interest or fees on the loans of borrowers impacted by the coronavirus economic turmoil.

Centrix and Illion had been working on ways to prevent reliable people who suffered economic impacts of coronavirus from having their credit scores ruined.

Credit reporting agencies were encouraging the likes of banks to take care, and avoid ruining the credit scores of people hit hard by the coronavirus economic downturn.

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Credit reporting agencies were encouraging the likes of banks to take care, and avoid ruining the credit scores of people hit hard by the coronavirus economic downturn.

A reduced credit score can have long-term impacts on people’s ability to do things like borrow money at a reasonable price, or switch power companies.

Bligh said Illion was encouraging banks to ensure they tagged people who were missing payments due to coronavirus as not having anything to pay when they passed payments information to credit reporting agencies, and do to so when they granted mortgage holidays.

“We have about 5000 people at the moment where repayment history information is not required. We think that number will significantly increase,” Bligh said.

Mistakes would be made however, and Bligh urged people to keep an eye on their credit scores through Credit Simple, and for owners of businesses to do the same. Credit Simple, which is owned by Illion, allowed people to register to check their credit report and score for free.



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