Loan surfing may up insolvency risk

THURSDAY, SEPTEMBER 21, 2006

A financial comparison site has warned its own industry against encouraging those at risk of insolvency into further debt.

Financial comparison sites can encourage people to take out more loans and credit cards than they can afford, increasing the risk of insolvency, new research has said.

A study from Money Expert has found that as many as 8.7 million people have bought financial products via comparison websites in the past year, many of whom may be at risk of being unable to manage their debts – eventually risking insolvency.

The concern, according to the academic that carried out the research, arises from the way in which the sites rank compare products, focusing too much on price and not enough on additional product features such as service quality.

In addition, applying for credit can damage a person's credit rating even further, which can make applying for credit such as a mortgage even more difficult in the future.

Professor Merlin Stone from the Bristol Business School was commissioned to produce the research by Money Expert.

Mike Naylor, a spokesperson for the consumer magazine Which?, spoke of the importance of knowledge in preventing problems such as insolvency: "I think there is probably a need for everybody to get educated, even people with good credit ratings."

He continued that once problems start, there is little that can be done: "I would have to say that proper, responsible management of your finances is the only way to improve your credit score. However, it is a myth that you can rebuild your credit rating."

Nearly one in five adults has bought a financial services product through a price comparison site in the last 12 months, Money Expert said.