Secured Loans vs. Unsecured Loans

What are the main differences between secured and unsecured loans?

When it comes to borrowing, there are two main loan types available; secured and unsecured. The unsecured loan types are financial products such as credit cards, goods bought on HP and personal loans. They are typically low in value with short-term repayment periods and if you cannot afford to make the repayments, your credit history may be affected but you will not lose your home.
Secured loans are at the other end of the scale. They offer increased borrowing limits and the loan repayments can be spread out over much longer periods. Secured loans also have a much higher approval / acceptance rate although the borrower does need to provide security, which usually takes the form of their home or another valuable property they own.

What advantages do secured loans offer?

Because a borrower is backing up their loan with a valuable asset, most banks and other lenders are willing to lend much higher amounts. If you are looking to borrow an amount that is over £20,000 then a secured loan is the most realistic option. Homeowner loans usually start at around £5,000 in value, and can go as high as £100,000 or more. Loans will be approved depending on the value of your home and the amount of equity in the secured property.

The actual interest rates will depend on your personal circumstances and your previous borrowing history – although the chances of being approved for a secured loan are much better than with an unsecured loan product.

Would I be better off with an unsecured loan?

If you are thinking of taking out unsecured finance in the form of a personal loan then you will need to have a decent credit score. Unlike a secured loan, an unsecured loan can be applied for even if you do not own a property or have a mortgage although you will not be able to borrow anywhere near as much money. Personal loans usually range from £1,000 to £25,000 and the interest rates vary tremendously from one lender to the next. With unsecured loans, the repayment terms are much shorter than those offered to homeowners – typically ranging from one to five years.

Which loan should I apply for?

When it comes to applying for a loan, the main thing you should be concerned about is your ability to pay back. You obviously want to make sure you can realistically afford to make the repayments without leaving yourself short for bills and other expenses. If you are only looking to borrow a couple of thousand pounds which you intend to pay back quickly then unsecured finance in the shape of a personal loan will more than likely best suit your needs. However, if you have CCJs or your credit score is less than desirable, you will probably encounter a great deal of difficulty in terms of finding approval. Furthermore, if you are accepted then the interest rates will probably be quite high.

If you are looking to borrow a larger amount, such as £5,000 and upwards, and you are a homeowner then a secured loan offers much higher approval rates with much more flexibility in terms of repayments. You can choose to pay back an unsecured loan over a period lasting anywhere up to thirty years – although you will obviously have to pay back a lot more interest if you are planning to pay the loan back over a much longer period.

secured loan calculator is a trading style of UK Property Finance Ltd which is authorised and regulated by The Financial Conduct Authority (FCA) FRN no 667602. Think carefully before securing debts against your home. Your property could be repossessed if you do not keep up repayments on your mortgage or on any other debt secured on it. The team at UK Property Finance have many years of experience in all types of regulated and unregulated property finance, in-particular bridging finance and property development finance. Not all property finance products are regulated by the Financial Conduct Authority.

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