This article mentions some terms commonly used with this topic. Here is a range of definitions. An unsecured loan - also referred to as a personal loan - is when you borrow money without having to give security against it such as your home or car. Unsecured loans are suitable when you want to borrow a small sum of money. interest rates tend to be a bit higher than if you borrowed the money as a secured loan. This is since, with a secured loan, the lender is more certain about recovering their money in case you neglect your repayments.
An unsecured lender is a lender who gives a loan without asking for some form of assurance (like your property or car). Unsecured loans may be faster to put in place nevertheless, there will be a greater cost in the amount of interest than with a secured loan. This is because the unsecured loan company is taking a larger amount of risk as if you fail to meet loan instalments, the lender is not able to seize your assets so that they can get repayment.
An arrear is a legal designation and is a way to explain when you are late in payments on a credit arrangement. Someone will be 'in arrear' as of the time that their first payment is missed. The term 'arrears' is most frequently used when explaining late payment of personal loans, credit cards, mortgage or rent and also taxes and child support.
Lloyds TSB, Halifax Bank of Scotland, Nationwide, Northern Rock, Abbey, Alliance and Leicester, and Marks and Spencer Money, all said they use charging orders to turn unsecured debt into borrowing secured against the home.
There is a now a trend on issuing Charging Orders by major lenders when debts owed to them are not met. According to BBC Radio 4's Money Box programme in October 2005 the number of Charging Orders issued in county courts is running at 35,000 a year - that?s three times more than what it was five years ago.
A Charging Order put on your home means that when or if you sell the property, once the mortgage has been cleared, any proceeds will go to pay the outstanding debt.
As a Charging Order is a way of turning an unsecured debt into a secured debt, this in effect means that if you mess up on your credit card repayments, the result could be that your credit card provider can place an Order against your home.
While debts are debts and should be repaid, it is food for thought as to just how many of the major financial and High Street names are using it as a method of debt control.
Industry watchdogs say that the way loans and credit cards are being marketed should be changed so that they include mortgage-style warnings (eg. Your home may be at risk if you miss repayments).
The Financial Services Authority - the financial body for consumers - told the programme that it does not regulate unsecured debt, and therefore it is the remit of the Department of Trade and Industry (DTI) to ensure that consumers were treated fairly.
The National Debt Line is a national helpline. It presents (free of charge), individual and confidential guidance to individuals on dealing with debt problems in the UK. Their helpline service is on hand all week long and they also host an online website that has a great deal of valuable assistance and counsel on it. The National Debtline is a branch of the Money Advice Trust (MAT), which is a registered charity. MAT (the Money Advice Trust) supplies consumers a strategic plan to dealing with extreme personal debt so they can regain control of their money matters.
