When is an Unsecured Loan a Sensible Move? Borrowing Money to Consolidate Debt and Pay Household Bills

Levels of unsecured lending in the UK currently stand at 0.2 trillion. Unsecured loans are a convenient, highly regulated way to borrow money. The problem is that borrowing money has been too convenient. This has resulted in high levels of personal debt, creditor harassment, loan defaults and bad credit for millions of struggling borrowers.

Many borrow in order to consolidate debt, such as smaller unsecured loans, personal overdrafts and credit card debt. Others do so because they don’t want to wait any longer before making a purchase. Whilst unsecured loans are a practical solution for many families, others may wish to think carefully before adding to household bills and expenses.

Unsecured Loans and Home Improvements

In a rising market, taking out an unsecured loan for home improvements can be a smart move. For example, a new kitchen or double glazing can add thousands to the value of a property. However, taking out an unsecured loan in a falling property market is unlikely to add value, especially for those already struggling with negative equity.

Borrowing Money to Consolidate Debt

Multiple debts can make household bills difficult to manage. An increasing number of people are choosing to consolidate debt with an unsecured loan. Others take out a secured loan when bad credit is an issue. Borrowers should always think very carefully before turning unsecured debt into a secured loan or second charge on a property.

Unsecured loans help to reduce monthly outgoings, particularly for high APR outgoings, such as credit card debt and personal overdrafts. Credit card debt doesn’t have a defined term and can continue indefinitely so an unsecured loan does mean that there is light at the end of the tunnel.

Credit Ratings and Unsecured Loans

Those without a credit history may find that taking out an unsecured loan and establishing a stable history of repayments helps them to later get a mortgage. For many lenders, no credit history is perceived almost as negatively as an adverse or bad credit history.

Unsecured Loans and House Deposits for First-Time Buyers

Whilst house prices are currently falling, millions of first-time buyers still struggle to raise sufficient money for a house deposit. Whilst affordability needs to be established, taking out an unsecured loan is a convenient way of raising a sufficient house deposit.

Those struggling with bad credit should not proceed with high APR unsecured loans to consolidate debt. Interest rates for those with bad credit tend to be in the region of 50-60%. Borrowers should also be wary of doorstep lending and particularly loan sharks. If personal debt isn’t manageable, a debt solution may be preferable to an additional unsecured loan.