Unsecured loans are second most common form of UK borrowing

Unsecured loans are second only to credit cards as the UK’s most prevalent form of debt, according to new research by personal finance comparison site NerdWallet.

Credit cards remain the most common form of borrowing, with 42 per cent of consumers admitting to credit card debt.

However, 30 per cent of consumers admitted to having some form of unsecured loan, with consumers aged 65 and over the biggest unsecured loan users at 43 per cent. For this group unsecured loans exceeded use of credit cards (40 per cent), payday loans (25 per cent), and buy now, pay later (BNPL) at 10 per cent.

NerdWallet UK analysed consumer debt by surveying 2,000 UK adults aged 18 and over, to find out how much the average person currently owes, and their concerns surrounding the cost-of-living crisis and future financial security. More than two fifths of consumers (45 per cent) said that they are currently in debt.

Read more: Half of Brits have stopped saving as crisis hits

Secured loans represent the third biggest chunk of debt in the UK, with 29 per cent of consumers having a secured loan. Meanwhile, 15 per cent of Brits are in debt with a BNPL company.

Women are more likely than men to use BNPL to spread the cost of purchases, with 20 per cent saying they did, compared with 11 per cent of men.

NerdWallet’s 2022 Household Debt Report also asked Brits how much debt they were in, with 74 per cent of UK consumers stating that they currently owe up to £5,000. Just four per cent had debt in excess of £10,000.

The research found that Gen Z (aged 18 to 24) has accumulated different levels of debt. While just over one fifth (21 per cent) claiming to have £600 to £700 worth of debt. One in eight (12 per cent) owe £700 to £800, and almost one in six (13 per cent) are already carrying more than £1,000 worth of debt.

Elsewhere, almost one third (31 per cent) of millennials aged 25 to 34 stated that their debt totalled less than £500. While one in five (20 per cent) millennials and over a third (35 per cent) of those aged 35 to 44 claim they currently owe between £1,000 and £10,000.

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Unsurprisingly, the results indicated that those aged 65 and over are struggling the least with debt, with almost half (49 per cent) owing less than £700.

Worryingly, the report revealed that a considerable amount of borrowing is being used to cover the cost of living.

Just under a third (31 per cent) of consumers aged 35 to 44, and 29 per cent of those aged 18 to 24, admitted to borrowing money to pay for groceries. About half that amount – 15 per cent – of those aged 25 to 34 said they bought groceries on credit.

“Borrowing allows us to pay for goods and services without having to cover the up-front cost ourselves”, NerdWallet UK personal finance expert Brean Horne said.

“It’s very common for consumers to have some form of debt – but it’s important to ensure that you can afford repayments before taking out any credit agreement.

“Borrowers who manage their repayments and pay off their debt on time are unlikely to run into any issues. However, shoppers purchasing more than they can reasonably afford may be putting themselves at risk, especially as the cost of living continues to rise.”

Read more: Cost of credit cards and personal loans continues to rise