The pitfalls of an unsecured loan

by Debt Watchdog on November 27, 2009

Many people who take out an unsecured loan don’t realise that they may be risking losing their house if they fail to maintain the repayments.  It does focus the mind when you consider that a foreign holiday or poor debt management may put your house at risk.  So how can this happen and what measures can you take to prevent this.

What is an unsecured loan?

An unsecured loan is a loan that is not guaranteed by a pledge of security or collateral by a borrower; in other words, it does not identify specific assets – property etc. – to which a lender is entitled if a borrower defaults on a loan. Unsecured loans are a very popular and readily available form of borrowing in the United Kingdom; 35% of British consumers regularly use some form of unsecured debt – which includes not only loans but also credit cards and overdrafts – and 10% actually use unsecured loans to pay off other forms of debt. Theoretically borrowers can rest safe in the knowledge that should they fall into arrears or default on an unsecured loan, nothing other than their credit rating is at risk. However, there exists an obscure, but perfectly legal, instrument called a “Charging Order” which lenders can use to effectively turn unsecured debt into secured debt.

What is a Charging Order?

Currently if you fail to keep up repayments on an unsecured loan, a lender is entitled to take you to court in an effort to recover the money you owe. If, after a hearing, the court finds in favour of the lender, you may be issued with an order, known as a CCJ or “County Court Judgement”, which requires you to pay your debt and stipulates how you should repay it. Once a lender has obtained a CCJ against you, however, they can also apply for a Charging Order. In fact, a change in the law is anticipated, whereby a creditor would be able to apply for a Charging Order without first obtaining a CCJ.

A Charging Order is a legal order placed on your home or land so that when you sell it you are legally obliged to pay off your debt in full before you can receive any proceeds from the sale. This can be serious enough if your creditor is prepared to wait until you sell your property of your own volition – restrictions on the sale or remortgaging of the property will be lodged with the Land Registry – but it can be worse still. If a creditor acquires a Charging Order and they are not prepared to wait for their money they can apply for a further order known as an “Order of Sale”.

Order of Sale -Losing your house

Orders of Sales are rarely granted, especially if your debt is small but, potentially, you could be forced to sell your home immediately to repay your debt. This is fundamentally very similar to the process of repossession (if you default on your mortgage repayments) so despite what lenders may tell you about the benefits of unsecured loans – for which they are also happy to charge you higher interest rates – if the worst comes to the worst there is little to choose between unsecured and secured debt.

Efficient Debt Management

Control is the key to good debt management.   By control I mean understanding where your money is going and balance this with the amount your are earning.   It may seem ludicrous that your home can be at risk – even theoretically – as the result of arrears or default on small loan or credit card balances, but the number of Charging Orders granted has increased by 1,000% since the turn of the century. As Britain officially enters recession and unemployment rises, more and more people are likely to run into problems with unsecured debt and lenders are becoming increasingly willing to resort to Charging Orders.

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5 Important Trade Financial Management Calculator

by Kieran on October 27, 2009

  1. Oanda – Currency converter for 164 currencies and 3 metals
  2. EasyCalculation – Compare dates and days for freight or shipping arrangements
  3. Rigzone – oil and gas conversion calculator
  4. IOR Energy – Engineering conversion calculator
  5. Federal Bank – Bill discount/exchange calculator

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Company Registration in the UK

by Reuben on October 12, 2009

If you want to run your own business in the UK you have two main methods – either be a sole trader or set up a limited company (OK there is a third method by starting a partnership LLP scheme but we’ll stick with the main two for this article).

As a sole trader you are effectively self employed and the strict rules in the UK mean you need to tell HMRC of this change to your income within three months of starting your business otherwise they will fine you (the initial fine is £100 and just keeps growing – the system of fines is a few years old now but almost everything with a deadline date has a fine and some deadlines you won’t know about unless you read up on everything).

As a sole trader this means you are personally liable for anything that goes wrong. Although insurance may cover some of the losses (for example, if you get sued for providing wrong information) courts and others can come after your personal assets. The positives are that you don’t have all the red tape that owning a company entails.

Setting up a private limited company in the UK is very easy and can be done online if you want an “off the shelf” name then company registration can be done in a matter of a few hours using online registration agents. All agents are policed by companies house and are integrated with their own system. Once you have chosen the name of the company then the agent will send all the relevant forms to your via email or for a small additional fee hard copies to your business address.

Once you have a trading company then you will probably be the director and with that comes certain responsibilities. Of course losses are limited to the company and not you personally but each year you will have to file a set of accounts at companies house, complete the annual return and other required paperwork – normally this is undertaken by an accountant each year as they know exactly what to do and file things on time and properly.

Whether you are a sole trader or limited company if your turnover is going to be over a certain threshold each year (currently £67,000) then you’ll also have to register for VAT – then of course if you take staff on there are additional regulations with regards to employing people and paying income tax and national insurance.

But setting up a private limited company in the UK is fast and cheap (about £40) but there are responsibilities that you should be aware of before you go down this route.

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