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With so many people blinded with lenders terminology, no wonder we are baffled by the types of loans available and what they mean for us. And it doesn't help that some of the lenders use different terminology to mean the same thing. For example a unsecured loan and personal loan mean one and same thing.
As a borrower you have two basic options. Either a secured loan or an unsecured loan. Whatever your reason for the loan the two basic options remain the same - For example you could take out a holiday loan, this could either be secured or unsecured.
Feemale has put together information on both types of loans and highlights some of the basic difference between the two.. To secure or not to secure - the choice is yours .
General features at a glance
Secured Loan |
Unsecured Loan |
Generally only available to homeowners |
Available to homeowners and non homeowners |
Secured against property |
No security required |
May offer lower interest rates |
Usually higher interest rate |
Higher loan amounts can be borrowed |
Quicker to obtain money |
Longer repayment term |
Not as much paperwork |
Available to poor/adverse credit cases |
Generally not available to poor/adverse credit cases |
Secured Loans In Detail
A secured loan requires the borrower to provide the lender with a form of security. In majority of the cases this is the borrowers home, whether it is mortgaged or owned outright. In some cases a loan can also be secured against a car or anything that can be redeemed to the value of the secured loan.
Secured loans are much easier to obtain than unsecured loans. The reason for this is that the lender has the benefit of security, which means that if for any reason you were unable to keep up your repayments then they would sell your home to recuperate their loss.
Secured loans are often preferred over unsecured loans because you are able to borrow higher amounts regardless of your income. The amount you can borrow with a secured loan varies from lender to lender and can range from £3,000 to £50,000 and some lenders will even consider borrowing up to £100,000. Generally the amount borrowed will depend upon the value of the asset, ability to repay the loan and your personal circumstances.
The downside of secured loans is that the lender has the power over your asset. And their main priority is to recoup their outstanding balance, and not necessarily to get the best price for that asset. Hence why so many repossessed properties are sold below the market value. Another disadvantage is that non payment doesn't just cost
you your asset but also affects your credit rating, which will then make it difficult for you to get any future loans.
Secured loans also take a longer time period to set up than unsecured loans because the lender has to make all the relevant checks against the asset the loan is being secured.
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