Understanding secured v unsecured debt in Northern Ireland

Not all debt is created equal. While most personal debt is classed as unsecured debt, there are some common forms of borrowing which are classed as secured lending.

Knowing the difference between secured and unsecured types of debt is important when considering your debt relief options, and also when it comes to the consequences of not keeping up with the repayments on your outstanding debts.

Secured debt refers to a loan or finance agreement which has been secured against a specific asset. Security could be on a vehicle, a piece of machinery, or property. A mortgage is the most common form of secured borrowing whereby the loan is secured against the house.

Secured debt is not necessarily worse than unsecured debt, so long as you are able to keep up with the monthly repayments on this type of borrowing as and when they fall due. If you are able to do this, your debt will be paid off just like any other type of borrowing.

The problem with secured debt arises if you cannot afford the contractual monthly repayments. When you default on a secured loan, the lender has the right to repossess the asset the borrowing is secured against in order to recover the money they are owed.

In the case of falling into arrears with your mortgage, for example, the lender could repossess your home and force you to sell it to repay the balance remaining on the mortgage.

The vast majority of consumer debt is classed as unsecured. Unsecured debt includes credit and store cards, personal loans, and overdrafts. Should you fail to keep up with your minimum monthly repayments, the lender is not able to force you to sell your property or other assets in order to raise the money you need to repay your debts.

Lenders of unsecured debt are limited in what they can do, however, this does not mean this type of debt is not serious. You can expect unsecured creditors to put pressure on you to pay by sending you reminder and final warning letters, making regular phone calls, and even enlisting the help of bailiffs if the situation is left to continue.

While you may not be at risk of losing your home due to unsecured debt, you should be careful not to let to situation escalate. Unsecured creditors are able to petition for your bankruptcy should you continue to refuse to make payment which can have serious consequences for you.

A secured loan gives lenders much more protection against defaults as they know they can leverage their security to recover the money should you fail to pay what you owe. Offering security can also increase the amount a provider is willing to lend, as well as improving the terms – such as the interest rate charged – on this borrowing.

So while secured lending does come with its own drawbacks, offering security to underpin a loan can make finance providers much more likely to lend you the money you are asking for.

If you have found yourself in unmanageable debt and are looking at ways of dealing with the money you owe, perhaps through an Individual Voluntary Arrangement (IVA) or bankruptcy, knowing if your debt is secured or unsecured becomes extremely important.

This is because secured debt cannot be included in these types of formal debt solutions. It is only unsecured debt which can be dealt with as part of an IVA or bankruptcy; any secured debt will need to be managed separately. Depending on your situation and the scale of your secured debt problems, this may mean you have to sell your property, vehicle, or other valuable assets in order to settle your secured borrowing if you are unable to service the loan on a monthly basis.

However, you may find that entering into an IVA to deal with your unsecured debts in a more affordable manner can free up the money you need to keep up with the monthly repayments on your secured debts.

If you are dealing with debt problems which just seem to be getting worse, the experts at Northern Ireland Debt Solutions are here to help. Our team of personal debt experts can provide you with the help and advice you need. We will take the time to understand your situation, explore the options open to you, before recommending the most appropriate course of action. Contact the team today and take the first step towards a debt-free future.