Over 27 million adults in the UK are suffering from some sort of debt. This accounts for over half the adult population of the UK. The proliferation of debt across the country has grown exponentially in the past few years, with fewer and fewer people becoming consumed by the implications of debt. 

One of the most common types of debt that you might encounter is known as unsecured debt. What does this mean, you might ask yourself? We take a look at unsecured debt, and reveal the average unsecured debt in the UK.

Unsecured debt – what you need to know

There are lots of different ‘types’ of debt that you can find yourself in. One of the most common forms of debt that lots of people suffer from is known as unsecured debt. 

What is unsecured debt?

Unsecured debt refers to loans that aren’t backed by collateral. This means that you, as the borrower, do not have to pledge any specific assets as security for this loan. They are a much riskier loan for lenders to get involved with, and because of this, they carry much higher interest rates than other loans.

What are some examples of unsecured debt?

So that’s the basics on unsecured debt – but what does it all mean? And what are some good examples of unsecured debt? 

Unsecured debt is a really common type of debt and it encompasses a whole load of different things related to credit accounts. Unsecured debt can include basically any instance in which credit was given without any collateral requirement. 

The following are some of the examples of unsecured debt that hold the most amount of unsecured:

  • Personal loans
  • Credit cards
  • Catalogue debts
  • Overdrafts
  • Home credit
  • Payday loans
  • Store cards

 Why is unsecured debt risky for the lender?

As there is no collateral for the lender of the loan, unsecured debts are quite risky. Mortgages, for example, have the home as collateral, whereas credit cards don’t necessarily have an ephemeral or physical entity that can be held to ransom, as it were. 

One of the big risks faced by lenders is that you as the borrower might choose to default on the loan through bankruptcy. The lender would be able to sue the borrower for repayment of the loan, but if there were no specific assets that were originally pledged as collateral, then the lender may never see their initial investment returned to them.

Because of these risks, the rates of interest are much higher on unsecured debt than they are on other sorts of debt.

Unsecured debt in the UK

Now we have a good grasp on unsecured debt and what it all means. We’ll take a look at unsecured debt in the UK, and discuss the average unsecured debt in the UK.

General facts & figures

Overall, this year has marked an unsecured debt total of £300 billion. This averages out at around £11,000 per household in the UK. This is in fact in excess of the rate before the current health crisis, at a fairly staggering 30%.

This year has marked the fast rate of growth of unsecured debt in the past 15 years – unsecured debt grew by 11%, which is about £80 million a day. At least 75% of this growth is due to car finance, credit cards, overdrafts and student debt – all of which are the most common things to have a debt for.

Age range

Debt can affect anyone over the age of 18. If you are under 18 and you manage to take out a loan, and find yourself in debt, you may not actually be obliged to settle the debt with your debtors. If you’re over 18, you will be liable for your debt and will have to settle it.

The average age group for unsecured debt in the UK is the 25-34 year old age group. Typically this age group, when compared to older borrowers, hold 5 times more unsecured debt, and they are three times more likely to need to use credit in order to purchase essential items. This, of course, opens up new lines of unsecured debt. 

This age group are also 3 times more likely to have serious worries about their ability to repay their debts in the future. This is also the age group that are primarily renters, who are also a vulnerable category for unsecured debt. Compared to homeowners, and even those with mortgages, renters are twice as likely to have the need to pay for items such as food and utilities using credit.

Average unsecured debt in the UK – final thoughts

With nearly half a million people currently unemployed in the UK, combined with a 4.2% increase in the average first-time buyer house price in the past 12 months, it’s almost understandable that more and more people are turning towards credit and taking out personal loans. 

In fact, the average household in the UK was reported to have £2,204 credit card debt, and with the current rates of employment combined with savings and the like, it will take an average of 6 years for a first-time house buyer to save up for a deposit. 

With government austerity, the rise of insecure work, years of wage stagnation and income being much lower today than it was 5 to 10 years ago, it’s not surprising to see the sudden and drastic uptick in average unsecured debt in the UK. Even schemes such as the Universal Credit scheme have pushed some families into hardship, largely owing to the waiting times families have to endure before they get their first payments.

If you are suffering from any sort of debt, there are numerous free and confidential charities and services available to you in the UK, where you can seek out advice and help with regards to your debt. The three most popular and well-known websites are:

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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