Unsecured debt is any borrowing not tied to an asset the lender can take back: credit cards, personal loans, overdrafts, store cards, buy now pay later and payday loans all count. Hire purchase car finance does not, because the finance company owns the car until the final payment. A remortgage or secured loan (also called a homeowner loan or second charge mortgage) can consolidate the unsecured ones; lenders want a statement for each, no older than 3 months.
- A debt is unsecured when the lender has no legal charge over your home, car or other property if you stop paying.
- Credit cards, personal loans, overdrafts, store cards, catalogue accounts, BNPL and payday loans are all unsecured.
- Hire purchase and PCP car finance are secured on the vehicle, and most consolidation lenders will not repay them.
- Tax bills and council tax arrears are unsecured but are treated cautiously, and some lenders exclude them entirely.
- Consolidating unsecured debt onto your home converts it into secured debt, so your home may be repossessed if you fall behind.
What makes a debt unsecured rather than secured?
The difference is what happens if you stop paying. A secured lender holds a legal right over a specific asset: a mortgage or secured loan is registered as a charge on your home, and hire purchase gives the finance company ownership of the car until you make the final payment. If you default, the lender can repossess that asset. An unsecured lender has no such right. Its remedies are to report missed payments to the credit reference agencies, use a collection agency, and ultimately seek a county court judgment.
Because an unsecured lender is taking more risk, unsecured borrowing costs more. Credit cards, store cards and catalogue accounts commonly charge more than double the rate of a secured loan for the same borrower, and payday loans far more again. That gap is the entire reason consolidation exists: replacing high-cost unsecured debt with lower-cost borrowing secured on your home.
The flip side is worth stating plainly. When you consolidate, you are converting debt that could not cost you your home into debt that could. Your home may be repossessed if you do not keep up the repayments on a remortgage or secured loan. That trade is often worthwhile, but it is a trade, not a free improvement, and free advice from MoneyHelper, StepChange or Citizens Advice can help you decide whether it is the right one for you.
Which debts count as unsecured?
The list below covers the debts a lender will usually be happy to repay from a consolidation remortgage or secured loan.
- Credit cards. The most common debt consolidated, and almost always eligible. Lenders usually want the cards closed once repaid; see our credit card consolidation page.
- Personal loans. Eligible, though check for an early settlement charge on the existing loan, usually up to two months' interest.
- Overdrafts. Eligible, and often the most expensive debt on the list once daily fees are counted. Lenders may ask you to reduce the limit afterwards.
- Store cards and catalogue accounts. Eligible; these are simply credit cards with a narrower use and typically a higher rate.
- Buy now pay later. Eligible with most lenders, though many BNPL balances are interest-free and short, so clearing them from a 15-year loan rarely makes sense.
- Payday and short-term loans. Eligible, and often the first debt a lender wants cleared. Recent payday use can itself count against you in a credit assessment, so be upfront about it.
- Tax bills and council tax arrears. Unsecured in law, and some lenders will consolidate them, but arrears of any kind are treated as adverse credit and a few lenders exclude HMRC debt altogether.
Debts owed to family, and money owed under a debt management plan, sit in a grey area. Many lenders will repay a DMP in full as part of consolidation; our page on remortgaging after a DMP explains how that works.
Why is car finance different?
Most car finance in the UK is hire purchase or personal contract purchase. In both, the finance company owns the vehicle until the final payment, or the balloon payment on a PCP, has been made. That makes it a secured debt, just secured on the car rather than your home. The finance company can repossess the car if you stop paying, which is why HP and PCP rates are usually lower than unsecured loan rates.
Because the debt is already secured, most consolidation lenders will not repay it. Some will, if you request a settlement figure from the finance company and the solicitor pays it directly, and a few will allow a personal loan taken out to buy a car to be consolidated because that is unsecured. If the car finance stays, its monthly payment stays in your affordability assessment at the full amount. Our page on remortgaging to pay off car finance covers the exceptions.
The same logic applies to anything else with an asset behind it: a logbook loan secured on a car, a pawnbroker loan, or an existing secured loan. Those can only be cleared by repaying the secured lender directly, which is a different process from clearing unsecured accounts. Checking which of your debts fall into which group is part of an initial conversation with a broker, and it will not affect your credit score.
Why do lenders ask for statements for each debt?
Three reasons. First, the lender needs to know the exact balance so the loan amount is right. Balances move month to month, and an application built on last year's figures will not settle the accounts. Second, the lender usually pays the creditors directly through its solicitor on completion, and needs the account number, sort code and payment reference from a recent statement to do that. Third, statements show how the account has been run: missed payments, cash withdrawals on a credit card and persistent use of an overdraft all tell an underwriter something about the case.
Expect to be asked for the most recent statement for every account being repaid, usually no more than three months old, plus a settlement figure for any loan or DMP. For debts you are not consolidating, the lender will still see them on your credit file and count their payments in affordability. Our guide on whether lenders ignore debts you are paying off explains how that calculation changes depending on which accounts are cleared.
Gather the statements before you apply, since missing paperwork is a common reason a case stalls. If the total unsecured debt looks larger once everything is on one page than you expected, that is a useful moment to speak to a free debt adviser before committing to borrow against your home.
Consolidating unsecured debt onto your home is the wrong step if most of what you owe is interest-free or short-term, such as BNPL balances or a 0% card that will be cleared within a year, since stretching it over a 15 or 20 year secured loan will cost more and put your home behind it for no real benefit. It is also unsuitable if the debts are already in arrears or you are struggling to keep up with your mortgage; a free advice charity can negotiate with creditors without adding secured borrowing. And if car finance is your biggest monthly commitment, consolidation will usually leave it untouched.
Worried about debt? Get free advice first
If you're struggling, it's worth speaking to a free, impartial debt advice service before you borrow more. They don't sell anything and won't judge your situation.
- MoneyHelper: Free, impartial debt advice backed by government
- StepChange: The UK's largest free debt charity
- Citizens Advice: Free, confidential advice on debt and money
Checking your options with Equiclear will not affect your credit score.
Frequently asked questions
Is an overdraft unsecured debt?
Yes. An overdraft is unsecured borrowing from your bank, and it can be repaid from a consolidation loan like any other unsecured account. Overdrafts can be expensive once daily fees are counted, and lenders often ask you to reduce or remove the limit once it has been cleared.
Can I consolidate car finance with a secured loan?
Usually not, because hire purchase and PCP are secured on the vehicle and most consolidation lenders will not repay them. Some allow it if the solicitor settles the finance directly. A personal loan taken out to buy a car is unsecured and can normally be consolidated.
Does buy now pay later count as debt for a lender?
Yes. Lenders see BNPL balances on bank statements and increasingly on credit files, and count the payments in affordability. They can be included in a consolidation, though as most BNPL is interest-free and short-term, clearing it from a long secured loan rarely saves money.
Can I consolidate a tax bill or council tax arrears?
Some lenders will, since these are unsecured debts, but arrears are treated as adverse credit and a few lenders exclude HMRC debt entirely. If you have a time-to-pay arrangement in place, keeping to it may be the better route. A broker can identify lenders that consider tax debt.
Do I have to consolidate all of my unsecured debts?
No. You choose which accounts to repay, though lenders often require high-interest accounts to be cleared and closed. Any debt you keep remains in your affordability assessment at its full payment, which can reduce how much you are able to borrow.