Working Paper No. 263
By Ana Del-Rio and Garry Young
Unsecured borrowing by households, mainly in the form of personal loans, overdrafts and credit cards, has grown rapidly over the past ten years or so. This has raised concerns that it could cause widespread financial difficulties and default among households who might struggle to keep up with their debt repayments. The validity of such concerns will depend to a large extent on the type of people who have increased their indebtedness and whether they are borrowing more because their economic circumstances have changed and they feel more confident about taking on additional financial commitments. Borrowing for these reasons is unlikely to be as risky as increased borrowing without a change in underlying economic conditions. This paper examines survey evidence on the determinants and distribution of unsecured debt using waves 5 and 10 for 1995 and 2000 of the British Household Panel Survey (BHPS).