Would You Take Out a Loan To Pay for Your Groceries?
Food prices continue to surge as the cost of living crisis escalates in the UK. But are struggling shoppers considering loans to cover the cost of their rising grocery bills?
Around 89% of adults in Great Britain reported an increase in the cost of living between March and June 2022, according to the latest survey data from Office for National Statistics (ONS). This is up from 62% when the survey first began in November 2021. Rising food prices were one of the main contributors to expenses going up.
In addition, the ONS has reported that wages are failing to keep up with rising costs. Regular pay fell 2.8% from May to July 2022, this is one of the most significant decreases since 2001.
As a result, according to research from The Food Foundation, a UK charity that campaigns for affordable and healthy food for everyone, 7.3 million people live in households that have been cutting back on food in 2022 or couldn’t get food altogether because of rising costs.
Recently a UK supermarket launched a loan scheme to help UK shoppers afford groceries amid the cost of living crisis.
But, is taking out a loan to pay for groceries a good idea? We weigh up the pros and cons of borrowing money to cover your supermarket bill.
Are supermarket loans the answer to supporting struggling shoppers?
Historically, loans were used to cover larger, one-off expenses, such as cars, weddings and home improvements. However, worryingly the rise of Buy Now, Pay Later (BNPL) schemes and similar lending options have made borrowing to cover everyday expenses more common. This raises the question of whether people understand the risks of getting into debt with BNPL.
In July 2022, the growth rate for borrowing increased by 6.9% to its highest level since March 2019, according to figures from the Bank of England. And around one in 12 people in the UK uses BNPL to cover the cost of everyday essentials such as food and toiletries, according to Citizens Advice.
With some supermarkets and online providers allowing UK shoppers to buy food using interest-free instalments, opportunities to borrow money for grocery shopping could continue to rise. But is this a solution for struggling shoppers to manage the cost of living crisis and what are the risks?
While borrowing may offer some short-term financial relief, it’s really important to work out a budget first to see whether you can afford the repayments before applying.
Simon Dukes, chief executive of social lender Fair for You, says: “Credit is not the right answer for everyone. Before applying for a loan from any lender, customers should consider carefully whether they can afford to repay, and whether there are any better alternatives to using credit.”
Although interest-free borrowing can help households in the short term, reliance on credit to cover your expenses may signal the need for expert help. And if you’re late or can’t repay the loan, these missing payments can negatively affect your chances of accessing credit in the future.
Sue Anderson, spokesperson at debt charity StepChange, says: “Using credit to pay for essentials such as food is a red flag that you may be losing control of your finances.
“While the occasional use of credit can be useful to cover costs until payday, more habitual borrowing to afford the basics suggests that you’ve got more money going out than coming in.”
It’s important to note if you find yourself in a position where you can’t afford groceries, you may need outside support from government benefits, charities or food banks. Whilst loan providers may advertise a loan as interest-free, being able to repay the loan alongside being able to afford groceries the following week or month is unlikely. This puts you at risk of accumulating debt which will increase over time.
What can you do if you are struggling with the cost of food?
There are schemes available to help you save money on food shopping and put food on the table. Social supermarkets, such as The Feed in Norwich, are designed to help struggling local households access groceries at affordable prices.
Charities, such as The Trussell Trust and the Independent Food Aid Network, can help you find food banks in your local area.
Anderson says: “If you’re on a low income or you’re struggling to afford food and other basics, it’s important to make sure you are getting all the help you are entitled to.”
For example, your child may be entitled to free school meals if you receive government benefits. Using a free online benefits calculator can help you work and find other financial support you may be eligible for.
Note: The content of this article doesn't constitute advice or product promotion, but as commentary on the loans market.
Image source: Getty Images
Brean is a personal finance writer at NerdWallet. She covers a range of financial topics and has written for consumer titles including Which?, Moneywise and The Motley Fool. Read more