Secured Loan or Unsecured Loan? - Loans - News - Moneyfacts

News

Secured Loan or Unsecured Loan?

Secured Loan or Unsecured Loan?

Category: Loans

Updated: 31/10/2008
First Published: 04/10/2006

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Many of us will take out a loan at some point of our life, whether it is for a new car, holiday, home improvements or debt consolidation. Unsecured loans are the most popular form of borrowing for relatively small amount over a short term, but for larger borrowing secured loans are an option.

With secured loans the amount you are borrowing is secured against an asset, most commonly your home. As the lender has security that the loan will be repaid, cheaper rates can often be found with secured loans compared with unsecured loans. You should still shop around, as not all secured loans are cheaper.

You can usually borrow more over a longer term with a secured loan. Typically you can borrow up to £100,000 over a term of up to 25 years. However, as you are borrowing over a longer term you will be paying more in interest.

However, as the name suggest, you are putting your assets at risk if you cannot repay the secured loan. If secured against your home, you could lose this if you fall down on repayments.

Secured loans are usually offered at a variable rate. This means you cannot predict what your monthly repayments will be over the term, as if interest rates rise, so will the amount you repay.

With unsecured personal loans you often pay higher rates, as the lender has no security. Most loans quote a typical Annual Percentage Rate (APR) and this is often dependent on your credit rating, so it is a good idea to check the actual rate you are offered is a competitive one. Some personal loans are available on a fixed rate which means you know exactly what your monthly repayments are going to be. This can prove helpful when trying to budget. Unsecured loans are usually taken out over one to five years for amounts from £1,000 to £25,000.

Which type of loan you choose really depends on your circumstances and needs. A moneyfacts.co.uk user poll revealed that 45% of people would secure a loan against their home for a cheaper rate. As stated earlier, rates vary greatly on personal loans and so prices should be compared, as some unsecured loans are cheaper than secured ones. The main factor to think about is that you can end up losing your home or other assets if you struggle with repayment on a secured loan.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

Related Articles

Regulator to take closer look at high-cost credit

When used well, credit can be a viable way to help make ends meet and balance the books – but the problem comes when that credit is of the high-cost variety. The regulator has will be taking a closer look at the sector to see what else can be done.

The payday loan market is still broken

The payday loan market has been under fire a lot in recent years, and as a result, the financial regulator stepped in. But has it made a difference? Unfortunately, it looks as though there’s still a lot of work to be done.

Get a record low rate loan - if you qualify

Competition in the personal loans market is as hot as ever, so much so that one loan provider has slashed rates to the lowest on record – but only to those who fit the bill. The shopping bill, that is…
 
Close