Vat rise saw jump in instalment credit

The amount borrowed through instalment credit rose by 17 per cent during the month, compared with December 2008, to 260m, according to the Finance & Leasing Association.

The group attributed the rise to people borrowing money so that they could bring forward big purchases before VAT rose back up to 17.5 per cent at the beginning of this year.

It added that consumers were using instalment credit to fund smaller purchases, such as furniture, white goods and electrical items, typically costing up to 700.

The increase bucked the trend for other forms of credit, with car finance the only other type of lending to show a rise during the month, with this 41 per cent higher than in December 2008 at 907m, probably due to the Government's scrappage scheme.

Borrowing through credit cards and store cards dipped by 4 per cent and 3 per cent respectively, but the biggest dive was to unsecured loans, with lending dropping by 53 per cent during the month to 113m.

There was also a steep slide in lending through second-charge mortgages, which enable people to borrow money secured against their home, with advances falling 48 per cent to 30m.

Instalment credit was the only type of lending to show a rise for 2009 as a whole, edging ahead 2 per cent to 2.56bn.