In this essay I shall be discussing the factors which influence the level of and access to unsecured debt held by households.
In the early 1980’s the conservative government headed by Margaret Thatcher, began to liberalise the financial industry. This promoted more competition between firms to attract customers, and offer credit facilities to a wider range of consumers. Companies used aggressive marketing to attract customers, but the amount of different products available on the market to customers made it confusing, and many took on loans and credit cards without fully understanding the product they were buying, or the interest rates they would have to pay. This resulted in a wider range of consumers having access to buying goods on…show more content…
While a level of unsecured debt for households is acceptable and not a problem, as long as the households have the income available to at least make the minimum payments on these liabilities. It is when their level of debt payments exceeds their income, or a change in their circumstances such as losing their job, debt will become a problem as the borrower will miss payments or stop them all together. This will result in the lender trying to recover the money lent, by issuing a default notice and then this will be passed on to a debt collection agency to recover the money. As the debt in not secured against property, no goods can be seized but this default will be registered with the credit reference agencies, so consequently obtaining credit in the future with any high street bank will be almost impossible. If households struggle to keep up with repayments on a secured debt such as a mortgage, this will have the harsher consequence of the lender repossessing the property.
The main problem for low income households and those that have had credit problems in the past, are they may be financially excluded from mainstream financial products such as bank accounts, and will have to pay higher rates for services like utility bills as they can’t pay by direct debit. When these types of households needs to