At a glance

  • There are three types of debt: secured, unsecured and unarranged debt (known as arrears)
  • Some debt – like mortgages and personal loans – may be unavoidable if you want to achieve certain goals, including buying your first home, or paying for a home extension or new car
  • Other debt – such as credit card debt – can make life between paydays easier, especially if you need access to cash in an emergency
  • You can make money out of debt products – such as cashback credit cards – if you are disciplined and take advantage of the perks

At a glance

  • There are three types of debt: secured, unsecured and unarranged debt (known as arrears)
  • Some debt – like mortgages and personal loans – may be unavoidable if you want to achieve certain goals, including buying your first home, or paying for a home extension or new car
  • Other debt – such as credit card debt – can make life between paydays easier, especially if you need access to cash in an emergency
  • You can make money out of debt products – such as cashback credit cards – if you are disciplined and take advantage of the perks

At a glance

  • There are three types of debt: secured, unsecured and unarranged debt (known as arrears)
  • Some debt – like mortgages and personal loans – may be unavoidable if you want to achieve certain goals, including buying your first home, or paying for a home extension or new car
  • Other debt – such as credit card debt – can make life between paydays easier, especially if you need access to cash in an emergency
  • You can make money out of debt products – such as cashback credit cards – if you are disciplined and take advantage of the perks

The average household debt, excluding mortgages, is more than £9,000, according to official figures1. What this sum doesn’t tell you is what type of debt people have, and whether or not it’s the ‘right’ kind.

Types of debt

There are three main types of debt. Secured and unsecured debt are provided by financial firms to those who are deemed to be able to afford it, while arrears are debts that arise because of an inability to keep up with rent, utility bills and other regular payments. They are not authorised.

Secured debt gives the lender the right to seize a specific asset or assets if you forfeit on the loan. A mortgage is the most common kind of secured debt.

Unsecured debt, or consumer credit, is provided on the basis that you will pay a fixed or variable interest charge, with fees being applied if you fail to make adequate repayments. Personal loans are an example of unsecured loans. They tend to have higher interest rates than secured loans as the lender is taking on more risk.

Many debts work on a revolving basis, meaning it is ongoing, providing you make the required repayments by the end of each monthly billing period. Credit cards are typical of this type of debt.

There are several different debt products serving particular customer needs. Each has its pros and cons and where the minuses outweigh the pluses alternatives are required, unless you can avoid relying on debt in the first place.


Overdrafts

What are overdrafts?

The first type of debt many of us encounter is an overdraft – a short-term loan facility attached to a debit card.

Overdraft benefits

Overdrafts come in handy if you need a short-term credit facility. Providing you stick within the agreed limit, overdrafts offer a flexible means to borrow, and there is no charge for clearing debts early.

Overdraft risks

Using an overdraft attracts costs, which will be relatively high compared with the amount you have borrowed. This is especially the case if you spend more than your authorised overdraft limit.

Alternatives to overdrafts

If you are regularly dipping into, or simply cannot get out of, your overdraft, shop around for a 0% credit card or consider a fixed-term loan with repayments that you can meet.

You could also consider switching your current account to a provider that charges less for overdraft use. Since April 2020, all providers must only apply one overdraft fee, making it easier to compare different accounts.


Credit cards

What are credit cards?

The principle underpinning a credit card is simple – it’s a facility that allows you to buy now and pay later. However, there are several types of credit card.

All allow you to spend up to a limit, but differ in other ways, and there is usually an interest-free period of up to 56 days from the date of purchase, after which time interest will be charged on any outstanding balance.

Credit card benefits

Credit cards offer huge flexibility, allowing card holders to spend what they want, within limits, when they want. Also, most credit cards allow you to make a minimum repayment each month, which is handy in lean months.

Different credit cards suit specific purposes. For example, some reward you for your business by giving you cashback on spending, air miles or other perks.

Balance transfer cards allow you to move all your other credit card debt to a card that offers 0% interest for a set period, so you can work on clearing what you owe before the attractive introductory rate rises.

A further benefit is Section 75 of the Consumer Credit Act, which ensures that if a credit card purchase costing £100 to £30,000 goes wrong you’ll get your money back.

Credit card risks

Unlike spending with cash, credit cards make it all too easy to spend more than you can afford to repay. Also, while minimum repayments may seem like a good idea, you will never clear your debt by following this approach and end up paying more in interest.

Alternatives to credit cards

There are two main alternatives to credit cards. Debit cards are preferable if you can keep in the black, as your money is your own and, should you need to dip into the red, you can make brief use of your overdraft.

If you have significant credit card debts, a personal loan may provide the answer. Ideally, you should be able to find a loan that allows you to pay off an affordable sum each month over a set period.


Store cards

What are store cards?

Store cards are credit cards that can only be used at specific high street or online chains or outlets. You can use them to make purchases and then pay off the balance at the end of the monthly billing period. Interest is applied if you don’t repay in full.

Store card benefits

If you’re loyal to a specific shop, store cards can be worthwhile, as they reward repeat custom with freebees, discounts and even special events, such as preview events where new lines are offered exclusively to cardholders.

Store card risks

Late or impartial repayments attract relatively high interest rates, which can cost you more than the discounts and other benefits.

These cards are often sold at the till. Under pressure it’s easy to take them out before thinking carefully about whether you really need this extra debt product.

Alternatives to store cards

Cashback credit cards pay you a proportion of your spend, which could outstrip the benefits of a store card.


Personal loans

What are personal loans?

Personal loans are loans you pay off either on a monthly basis or by an agreed date. These loans are commonly offered by banks and building societies and are typically used where between £1,000 and £25,000 is needed.

Personal loan benefits

Personal loans are not secured against an asset, such as your car or home, meaning you won’t face a repossession order if you fail to make repayments.

Interest rates are fairly competitive given the number of lenders operating in this field, and usually lower than those attached to credit cards.

Personal loan risks

Interest rates are usually higher on smaller sums, which can make it more attractive to borrow more than you need to get a lower rate. Borrowing more than you need could cause problems if you begin to struggle with repayments and begin to incur penalties.

Although most personal loans come with fixed interest rates, some have variable rates, which could make it harder to meet repayments should the rate increase.

Personal loan alternatives

Using a credit card must be a better option if you are looking to borrow a relatively small sum, or plan to repay in full earlier than the minimum term offered by a loan provider. This is certainly a better option than opting for payday or doorstep loans, which are short-term loans that attract very high interest rates.


Mortgages

What is a mortgage?

A mortgage is secured against the property you are using this type of credit to buy. This means that if you can’t meet repayments, the lender can seize your home. The mortgage application process is rigorous, taking into account your credit history, income and your outgoings.

Mortgage benefits

Given the high cost of property, a mortgage is almost always essential if you want to become a homeowner. Buying property has long been seen as one of the best ways to build up personal wealth that would be indispensible later in life, particularly if you downsize to release some capital.

Interest rates are usually much lower than on other forms of credit as the loan is secured against your home.

Mortgage risks

Falling behind with repayments is the biggest risk facing mortgage customers. If you fail to meet repayments regularly there is a very real risk of your home being repossessed.

Alternatives to mortgages

If you want to get on the housing ladder, a mortgage is essential unless you are very wealthy. Certain financial products and schemes, such as a Lifetime ISA, can help you save, thanks to the 25% bonus on savings used to buy a first home.

Council tenants who have paid a public sector landlord for three years may be eligible to buy their home at a discount under the government’s Right to Buy scheme.

St. James's Place do not offer a LISA.


Secured loans

What are secured loans?

With a secured loan, you agree to put up an asset as security, so that if you fail to repay what you owe on time, the lender can take control of your property. This could be your home if this was secured against a cash advance for an extension, a car or other purchase.

Secured loans are ideal for funding large purchases or payments, such as clearing debts that are typically of more than £25,000, buying a new car, or funding an extension to your property.

Secured loan benefits

Interest rates are usually lower for secured loans than unsecured or personal loans. Also, as the loan is secured against an asset, a poor credit rating or low income may be less of a barrier to getting the loan.

Secured loan risks

Anyone taking out a secured loan is signing up to a big commitment. They could be left homeless or without other major assets if they are unable to make the required repayments. Given it is possible to have a secured loan running alongside other debt, such as credit cards and personal loans, it’s not a viable option unless you are on top of your finances.

Alternatives to secured loans

Consider an unsecured loan for loans of up to £25,000. Interest rates are typically comparable with those for secured loans, and you won’t lose your home if you struggle with repayments.


Car finance

What is car finance?

Car finance is taken out purely to buy a car. It comes in several guises, including a straightforward loan and a hire purchase agreement, where you hire a car, paying the company monthly instalments. When you’ve paid off the agreed sum, the car is yours.

A third type of car finance is a personal contract purchase. Like hire purchase, you usually need to put down a deposit, typically up to 10% of the car’s value, and make monthly repayments. With a personal contract purchase agreement, you don’t have to own the car at the end of the repayment term, as you can enter into a new contract to secure a new model.

Car finance benefits

Car finance allows to you drive a new car, with the purchase cost spread over several months. You also benefit from service support.

Some firms offer 0% financing, which allows you take out a loan without having to pay any interest on it.

Car finance risks

The finance company owns the car until you have made the final repayment, meaning you could be left empty-handed part way through your contract if you can’t make your monthly payments.

The deal you are offered will be based in part on your credit rating, meaning car finance is likely to be more expensive for those who can least afford it.

Alternative to car finance

Taking out a personal loan may prove less expensive, and there is no risk of your car being repossessed.


What to do if you’re in arrears

Unlike credit cards or loans, arrears are not debts you search for. This type of debt can be very damaging, particularly if you fall behind with rent (as this could lead to eviction) or Council Tax (which could see you prosecuted).

Anyone who is thinking of taking out a debt product to help clear arrears should speak to a debt charity, such as StepChange or Citizens Advice first.

The average household debt, excluding mortgages, is more than £9,000, according to official figures1. What this sum doesn’t tell you is what type of debt people have, and whether or not it’s the ‘right’ kind.

Types of debt

There are three main types of debt. Secured and unsecured debt are provided by financial firms to those who are deemed to be able to afford it, while arrears are debts that arise because of an inability to keep up with rent, utility bills and other regular payments. They are not authorised.

Secured debt gives the lender the right to seize a specific asset or assets if you forfeit on the loan. A mortgage is the most common kind of secured debt.

Unsecured debt, or consumer credit, is provided on the basis that you will pay a fixed or variable interest charge, with fees being applied if you fail to make adequate repayments. Personal loans are an example of unsecured loans. They tend to have higher interest rates than secured loans as the lender is taking on more risk.

Many debts work on a revolving basis, meaning it is ongoing, providing you make the required repayments by the end of each monthly billing period. Credit cards are typical of this type of debt.

There are several different debt products serving particular customer needs. Each has its pros and cons and where the minuses outweigh the pluses alternatives are required, unless you can avoid relying on debt in the first place.


Overdrafts

What are overdrafts?

The first type of debt many of us encounter is an overdraft – a short-term loan facility attached to a debit card.

Overdraft benefits

Overdrafts come in handy if you need a short-term credit facility. Providing you stick within the agreed limit, overdrafts offer a flexible means to borrow, and there is no charge for clearing debts early.

Overdraft risks

Using an overdraft attracts costs, which will be relatively high compared with the amount you have borrowed. This is especially the case if you spend more than your authorised overdraft limit.

Alternatives to overdrafts

If you are regularly dipping into, or simply cannot get out of, your overdraft, shop around for a 0% credit card or consider a fixed-term loan with repayments that you can meet.

You could also consider switching your current account to a provider that charges less for overdraft use. Since April 2020, all providers must only apply one overdraft fee, making it easier to compare different accounts.


Credit cards

What are credit cards?

The principle underpinning a credit card is simple – it’s a facility that allows you to buy now and pay later. However, there are several types of credit card.

All allow you to spend up to a limit, but differ in other ways, and there is usually an interest-free period of up to 56 days from the date of purchase, after which time interest will be charged on any outstanding balance.

Credit card benefits

Credit cards offer huge flexibility, allowing card holders to spend what they want, within limits, when they want. Also, most credit cards allow you to make a minimum repayment each month, which is handy in lean months.

Different credit cards suit specific purposes. For example, some reward you for your business by giving you cashback on spending, air miles or other perks.

Balance transfer cards allow you to move all your other credit card debt to a card that offers 0% interest for a set period, so you can work on clearing what you owe before the attractive introductory rate rises.

A further benefit is Section 75 of the Consumer Credit Act, which ensures that if a credit card purchase costing £100 to £30,000 goes wrong you’ll get your money back.

Credit card risks

Unlike spending with cash, credit cards make it all too easy to spend more than you can afford to repay. Also, while minimum repayments may seem like a good idea, you will never clear your debt by following this approach and end up paying more in interest.

Alternatives to credit cards

There are two main alternatives to credit cards. Debit cards are preferable if you can keep in the black, as your money is your own and, should you need to dip into the red, you can make brief use of your overdraft.

If you have significant credit card debts, a personal loan may provide the answer. Ideally, you should be able to find a loan that allows you to pay off an affordable sum each month over a set period.


Store cards

What are store cards?

Store cards are credit cards that can only be used at specific high street or online chains or outlets. You can use them to make purchases and then pay off the balance at the end of the monthly billing period. Interest is applied if you don’t repay in full.

Store card benefits

If you’re loyal to a specific shop, store cards can be worthwhile, as they reward repeat custom with freebees, discounts and even special events, such as preview events where new lines are offered exclusively to cardholders.

Store card risks

Late or impartial repayments attract relatively high interest rates, which can cost you more than the discounts and other benefits.

These cards are often sold at the till. Under pressure it’s easy to take them out before thinking carefully about whether you really need this extra debt product.

Alternatives to store cards

Cashback credit cards pay you a proportion of your spend, which could outstrip the benefits of a store card.


Personal loans

What are personal loans?

Personal loans are loans you pay off either on a monthly basis or by an agreed date. These loans are commonly offered by banks and building societies and are typically used where between £1,000 and £25,000 is needed.

Personal loan benefits

Personal loans are not secured against an asset, such as your car or home, meaning you won’t face a repossession order if you fail to make repayments.

Interest rates are fairly competitive given the number of lenders operating in this field, and usually lower than those attached to credit cards.

Personal loan risks

Interest rates are usually higher on smaller sums, which can make it more attractive to borrow more than you need to get a lower rate. Borrowing more than you need could cause problems if you begin to struggle with repayments and begin to incur penalties.

Although most personal loans come with fixed interest rates, some have variable rates, which could make it harder to meet repayments should the rate increase.

Personal loan alternatives

Using a credit card must be a better option if you are looking to borrow a relatively small sum, or plan to repay in full earlier than the minimum term offered by a loan provider. This is certainly a better option than opting for payday or doorstep loans, which are short-term loans that attract very high interest rates.


Mortgages

What is a mortgage?

A mortgage is secured against the property you are using this type of credit to buy. This means that if you can’t meet repayments, the lender can seize your home. The mortgage application process is rigorous, taking into account your credit history, income and your outgoings.

Mortgage benefits

Given the high cost of property, a mortgage is almost always essential if you want to become a homeowner. Buying property has long been seen as one of the best ways to build up personal wealth that would be indispensible later in life, particularly if you downsize to release some capital.

Interest rates are usually much lower than on other forms of credit as the loan is secured against your home.

Mortgage risks

Falling behind with repayments is the biggest risk facing mortgage customers. If you fail to meet repayments regularly there is a very real risk of your home being repossessed.

Alternatives to mortgages

If you want to get on the housing ladder, a mortgage is essential unless you are very wealthy. Certain financial products and schemes, such as a Lifetime ISA, can help you save, thanks to the 25% bonus on savings used to buy a first home.

Council tenants who have paid a public sector landlord for three years may be eligible to buy their home at a discount under the government’s Right to Buy scheme.

St. James's Place do not offer a LISA.


Secured loans

What are secured loans?

With a secured loan, you agree to put up an asset as security, so that if you fail to repay what you owe on time, the lender can take control of your property. This could be your home if this was secured against a cash advance for an extension, a car or other purchase.

Secured loans are ideal for funding large purchases or payments, such as clearing debts that are typically of more than £25,000, buying a new car, or funding an extension to your property.

Secured loan benefits

Interest rates are usually lower for secured loans than unsecured or personal loans. Also, as the loan is secured against an asset, a poor credit rating or low income may be less of a barrier to getting the loan.

Secured loan risks

Anyone taking out a secured loan is signing up to a big commitment. They could be left homeless or without other major assets if they are unable to make the required repayments. Given it is possible to have a secured loan running alongside other debt, such as credit cards and personal loans, it’s not a viable option unless you are on top of your finances.

Alternatives to secured loans

Consider an unsecured loan for loans of up to £25,000. Interest rates are typically comparable with those for secured loans, and you won’t lose your home if you struggle with repayments.


Car finance

What is car finance?

Car finance is taken out purely to buy a car. It comes in several guises, including a straightforward loan and a hire purchase agreement, where you hire a car, paying the company monthly instalments. When you’ve paid off the agreed sum, the car is yours.

A third type of car finance is a personal contract purchase. Like hire purchase, you usually need to put down a deposit, typically up to 10% of the car’s value, and make monthly repayments. With a personal contract purchase agreement, you don’t have to own the car at the end of the repayment term, as you can enter into a new contract to secure a new model.

Car finance benefits

Car finance allows to you drive a new car, with the purchase cost spread over several months. You also benefit from service support.

Some firms offer 0% financing, which allows you take out a loan without having to pay any interest on it.

Car finance risks

The finance company owns the car until you have made the final repayment, meaning you could be left empty-handed part way through your contract if you can’t make your monthly payments.

The deal you are offered will be based in part on your credit rating, meaning car finance is likely to be more expensive for those who can least afford it.

Alternative to car finance

Taking out a personal loan may prove less expensive, and there is no risk of your car being repossessed.


What to do if you’re in arrears

Unlike credit cards or loans, arrears are not debts you search for. This type of debt can be very damaging, particularly if you fall behind with rent (as this could lead to eviction) or Council Tax (which could see you prosecuted).

Anyone who is thinking of taking out a debt product to help clear arrears should speak to a debt charity, such as StepChange or Citizens Advice first.

The average household debt, excluding mortgages, is more than £9,000, according to official figures1. What this sum doesn’t tell you is what type of debt people have, and whether or not it’s the ‘right’ kind.

Types of debt

There are three main types of debt. Secured and unsecured debt are provided by financial firms to those who are deemed to be able to afford it, while arrears are debts that arise because of an inability to keep up with rent, utility bills and other regular payments. They are not authorised.

Secured debt gives the lender the right to seize a specific asset or assets if you forfeit on the loan. A mortgage is the most common kind of secured debt.

Unsecured debt, or consumer credit, is provided on the basis that you will pay a fixed or variable interest charge, with fees being applied if you fail to make adequate repayments. Personal loans are an example of unsecured loans. They tend to have higher interest rates than secured loans as the lender is taking on more risk.

Many debts work on a revolving basis, meaning it is ongoing, providing you make the required repayments by the end of each monthly billing period. Credit cards are typical of this type of debt.

There are several different debt products serving particular customer needs. Each has its pros and cons and where the minuses outweigh the pluses alternatives are required, unless you can avoid relying on debt in the first place.


Overdrafts

What are overdrafts?

The first type of debt many of us encounter is an overdraft – a short-term loan facility attached to a debit card.

Overdraft benefits

Overdrafts come in handy if you need a short-term credit facility. Providing you stick within the agreed limit, overdrafts offer a flexible means to borrow, and there is no charge for clearing debts early.

Overdraft risks

Using an overdraft attracts costs, which will be relatively high compared with the amount you have borrowed. This is especially the case if you spend more than your authorised overdraft limit.

Alternatives to overdrafts

If you are regularly dipping into, or simply cannot get out of, your overdraft, shop around for a 0% credit card or consider a fixed-term loan with repayments that you can meet.

You could also consider switching your current account to a provider that charges less for overdraft use. Since April 2020, all providers must only apply one overdraft fee, making it easier to compare different accounts.


Credit cards

What are credit cards?

The principle underpinning a credit card is simple – it’s a facility that allows you to buy now and pay later. However, there are several types of credit card.

All allow you to spend up to a limit, but differ in other ways, and there is usually an interest-free period of up to 56 days from the date of purchase, after which time interest will be charged on any outstanding balance.

Credit card benefits

Credit cards offer huge flexibility, allowing card holders to spend what they want, within limits, when they want. Also, most credit cards allow you to make a minimum repayment each month, which is handy in lean months.

Different credit cards suit specific purposes. For example, some reward you for your business by giving you cashback on spending, air miles or other perks.

Balance transfer cards allow you to move all your other credit card debt to a card that offers 0% interest for a set period, so you can work on clearing what you owe before the attractive introductory rate rises.

A further benefit is Section 75 of the Consumer Credit Act, which ensures that if a credit card purchase costing £100 to £30,000 goes wrong you’ll get your money back.

Credit card risks

Unlike spending with cash, credit cards make it all too easy to spend more than you can afford to repay. Also, while minimum repayments may seem like a good idea, you will never clear your debt by following this approach and end up paying more in interest.

Alternatives to credit cards

There are two main alternatives to credit cards. Debit cards are preferable if you can keep in the black, as your money is your own and, should you need to dip into the red, you can make brief use of your overdraft.

If you have significant credit card debts, a personal loan may provide the answer. Ideally, you should be able to find a loan that allows you to pay off an affordable sum each month over a set period.


Store cards

What are store cards?

Store cards are credit cards that can only be used at specific high street or online chains or outlets. You can use them to make purchases and then pay off the balance at the end of the monthly billing period. Interest is applied if you don’t repay in full.

Store card benefits

If you’re loyal to a specific shop, store cards can be worthwhile, as they reward repeat custom with freebees, discounts and even special events, such as preview events where new lines are offered exclusively to cardholders.

Store card risks

Late or impartial repayments attract relatively high interest rates, which can cost you more than the discounts and other benefits.

These cards are often sold at the till. Under pressure it’s easy to take them out before thinking carefully about whether you really need this extra debt product.

Alternatives to store cards

Cashback credit cards pay you a proportion of your spend, which could outstrip the benefits of a store card.


Personal loans

What are personal loans?

Personal loans are loans you pay off either on a monthly basis or by an agreed date. These loans are commonly offered by banks and building societies and are typically used where between £1,000 and £25,000 is needed.

Personal loan benefits

Personal loans are not secured against an asset, such as your car or home, meaning you won’t face a repossession order if you fail to make repayments.

Interest rates are fairly competitive given the number of lenders operating in this field, and usually lower than those attached to credit cards.

Personal loan risks

Interest rates are usually higher on smaller sums, which can make it more attractive to borrow more than you need to get a lower rate. Borrowing more than you need could cause problems if you begin to struggle with repayments and begin to incur penalties.

Although most personal loans come with fixed interest rates, some have variable rates, which could make it harder to meet repayments should the rate increase.

Personal loan alternatives

Using a credit card must be a better option if you are looking to borrow a relatively small sum, or plan to repay in full earlier than the minimum term offered by a loan provider. This is certainly a better option than opting for payday or doorstep loans, which are short-term loans that attract very high interest rates.


Mortgages

What is a mortgage?

A mortgage is secured against the property you are using this type of credit to buy. This means that if you can’t meet repayments, the lender can seize your home. The mortgage application process is rigorous, taking into account your credit history, income and your outgoings.

Mortgage benefits

Given the high cost of property, a mortgage is almost always essential if you want to become a homeowner. Buying property has long been seen as one of the best ways to build up personal wealth that would be indispensible later in life, particularly if you downsize to release some capital.

Interest rates are usually much lower than on other forms of credit as the loan is secured against your home.

Mortgage risks

Falling behind with repayments is the biggest risk facing mortgage customers. If you fail to meet repayments regularly there is a very real risk of your home being repossessed.

Alternatives to mortgages

If you want to get on the housing ladder, a mortgage is essential unless you are very wealthy. Certain financial products and schemes, such as a Lifetime ISA, can help you save, thanks to the 25% bonus on savings used to buy a first home.

Council tenants who have paid a public sector landlord for three years may be eligible to buy their home at a discount under the government’s Right to Buy scheme.

St. James's Place do not offer a LISA.


Secured loans

What are secured loans?

With a secured loan, you agree to put up an asset as security, so that if you fail to repay what you owe on time, the lender can take control of your property. This could be your home if this was secured against a cash advance for an extension, a car or other purchase.

Secured loans are ideal for funding large purchases or payments, such as clearing debts that are typically of more than £25,000, buying a new car, or funding an extension to your property.

Secured loan benefits

Interest rates are usually lower for secured loans than unsecured or personal loans. Also, as the loan is secured against an asset, a poor credit rating or low income may be less of a barrier to getting the loan.

Secured loan risks

Anyone taking out a secured loan is signing up to a big commitment. They could be left homeless or without other major assets if they are unable to make the required repayments. Given it is possible to have a secured loan running alongside other debt, such as credit cards and personal loans, it’s not a viable option unless you are on top of your finances.

Alternatives to secured loans

Consider an unsecured loan for loans of up to £25,000. Interest rates are typically comparable with those for secured loans, and you won’t lose your home if you struggle with repayments.


Car finance

What is car finance?

Car finance is taken out purely to buy a car. It comes in several guises, including a straightforward loan and a hire purchase agreement, where you hire a car, paying the company monthly instalments. When you’ve paid off the agreed sum, the car is yours.

A third type of car finance is a personal contract purchase. Like hire purchase, you usually need to put down a deposit, typically up to 10% of the car’s value, and make monthly repayments. With a personal contract purchase agreement, you don’t have to own the car at the end of the repayment term, as you can enter into a new contract to secure a new model.

Car finance benefits

Car finance allows to you drive a new car, with the purchase cost spread over several months. You also benefit from service support.

Some firms offer 0% financing, which allows you take out a loan without having to pay any interest on it.

Car finance risks

The finance company owns the car until you have made the final repayment, meaning you could be left empty-handed part way through your contract if you can’t make your monthly payments.

The deal you are offered will be based in part on your credit rating, meaning car finance is likely to be more expensive for those who can least afford it.

Alternative to car finance

Taking out a personal loan may prove less expensive, and there is no risk of your car being repossessed.


What to do if you’re in arrears

Unlike credit cards or loans, arrears are not debts you search for. This type of debt can be very damaging, particularly if you fall behind with rent (as this could lead to eviction) or Council Tax (which could see you prosecuted).

Anyone who is thinking of taking out a debt product to help clear arrears should speak to a debt charity, such as StepChange or Citizens Advice first.

References

1. Household debt in Great Britain: April 2016 to March 2018, Office for National Statistics

References

1. Household debt in Great Britain: April 2016 to March 2018, Office for National Statistics

References

1. Household debt in Great Britain: April 2016 to March 2018, Office for National Statistics

Getting Started

Tell us a bit about yourself and the types of articles you’d be most interested in seeing. And we’ll serve up useful, personalised content that meets your specific needs. Easy.



Find out more about Choices