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A third of borrowers with adverse credit have ramped up unsecured debt this year

Nick Cheek
Written By:
Nick Cheek

Around a third of people with adverse credit have seen the level of unsecured debt grow in the past 12 months.

As the cost of living continues to hit the most vulnerable hard, a new survey of 6,000 people by Pepper Money has revealed that 33% of those with adverse credit have increased their unsecured debt over the last 12 months.

Around 40% said they had grown the debt they have on Buy Now Pay Later schemes.

BNPL is a form of credit allowing customers to spread the cost of purchases over a number of payments without paying interest. However, where customers fail to make a payment or pay late, providers can and do impose penalty charges and interest.

Back in the summer, YourMoney.com reported that the City watchdog The Financial Conduct Authority (FCA) had issued a stark warning to BNPL firms which did not flag the danger of consumers falling into debt if repayments are missed.

Approximately one in five people with adverse credit have outstanding debt of over £10,000 (excluding mortgages and student loans).

Nearly a third (31%) of those with adverse credit said they feared their level of outstanding debt would make it more difficult for them to get a mortgage.

‘Managing short-term debt increasingly challenging’

Tom Whitney, head of sales for second charge mortgages at Pepper Money, said: “The cost of living crisis is driving an increase in levels of unsecured debt at the same time as rising interest rates are making it more expensive to service this debt.

“The monthly commitment of servicing short-term debts such as credit cards, store cards and overdrafts, can stifle the ability of many families to meet their monthly outgoing and many will be looking to streamline their finances.”

He continued: “In the right circumstances, consolidating expensive short-term credit onto a longer-term loan at a lower rate, could help to put families in greater control and to normalise their finances, as they pay down that credit over the longer term.”

Whitney said that managing short-term debt could be “increasingly challenging” for customers feeling food price inflation and rising energy prices.