Difference between Secured and Unsecured loans

It's sometimes difficult to know which is the more suitable option for you so we hope this guide will give you some idea as to which is better for you. Here are some points to bear in mind:

Secured Loans Usually have Lower Rates
Perhaps the main reason why people choose a secured loan – often referred to as a homeowner loan – over an unsecured loan is the fact that a secured loan offers much lower interest rates, therefore meaning that the amount that is eventually paid back will be much lower. This is because a lender can be sure that they have some collateral against the loan – the home – and can get their money back in the event that repayments are not kept up. With an unsecured loan, there is no guarantee that the lender will easily receive their money back, therefore meaning that they have to balance out the risk by adding interest to the loan, therefore making the deal worthwhile for them.

Secured loans allow you borrow larger amounts
While an Unsecured Loan will generally be no more than £30,000 -and you would need a big income and very clean credit to get that loan - a secured loan can, in theory, be arranged for any amount up to £2,500,000. With the larger amount comes a longer repayment term (up to 25 years) whereas Unsecured loans go no longer than 5 years.

Unsecured loans can be arranged faster
If you are in need of a quick cash injection, then unsecured loans are without doubt the best way to go. They can be arranged almost instantly due to the fact that massive amounts of background checks are not needed, unlike secured loans where the homeowner's equity must be thoroughly checked. However, it must be remembered that sometimes it pays to wait a little longer and to get a secured loan, as rushing into an agreement is often a surefire way of getting burned.

I'm Worried About Losing my Home
If you are worried about losing your home due to taking out a loan, then the fact is that you probably aren't in the position to take a loan out – even unsecured loans must be paid back and just because your home isn't at risk, the financial implications of not keeping up repayments can be severe. If, however, a loan is your only option then an unsecured loan is the best way to go – the lender does not have the recourse to forcibly sell your home should repayments not be made and therefore it is safe whatever happens.

Which Costs More to Set Up?
Due to the bureaucracy that surrounds the setting up of a homeowner loan – such as the checks that are needed and the amount of time that this takes – this type of loan will undoubtedly cost more to set up. Unsecured loans are much faster and require fewer checks, therefore meaning that fees are often non-existent. It is wrong to assume that this makes unsecured loans cheaper though, as in the long term the fees will be recouped on secured loans and they will turn out to be cheaper. As already stated, sometimes it makes financial sense to wait for secured loans instead of rushing into an unsecured loan so as to get to money quickly.