The Difference Between Secured and Unsecured Loans

You have decided to push the boat out and you decide on a large purchase, which requires a loan to pay for it. And with all the advertising on TV and in newspapers for secured loans, unsecured loans etc it leaves you with a dilemma on what type of loan will be best for your purchase and wallet.

So, what are the differences and what are the pros and cons of each one.

Secured Loans

This is a loan that is secured on your property. The reason a lender will want to secure the loan on your property is that they want some form of collateral should you not be able to pay your loan back. So think of these loans in a similar way to your mortgage which is also a big loan secured against your home. As a result the lending companies will always make it clear with the following statement:

"THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT"

The main advantage of a secured loan is that you will be able to borrow larger amounts of money and also benefit from lower interest rates than unsecured loans.

As the loan is borrowed against a property it is only open to homeowners and tenants cannot apply.

Unsecured Loans

These types of loans are the complete opposite to secured loans in that you don't need to put up your house as collateral. As a result most lenders will only allow you to borrow up to £25,000 although depending on your credit history some lenders may allow you to borrow up to the same amounts as a secured loan.

The interest rates on an unsecured loan are also higher and can be as much as 10%. So the repayment amount for a £10,000 secured loan compared to a £10,000 unsecured loan can be significantly lower.

Unsecured loans are also available to Tenants, which makes the demand for them to be much higher.

So what type of loan should you try? As you can tell from the above it depends really on whether you are a homeowner or not and whether you want to take the risk of securing a loan against a property. However if you want a loan above £25,000 then you may have no option but to take out a secured loan if you are a homeowner.

Armed with this information you should make a decision based on the above factors along with whether you can make the repayments ir-regardless of what type of loan you try. Not keeping up with repayments on either type of loan will give you a bad credit rating for the future so think carefully before you apply and don't borrow any more than you can afford.

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