Which is best? An unsecured or secured loan

There are many different types of loans available these days, with something to suit most needs and circumstances. This includes consolidation loans, home improvement loans, personal loans, car loans, wedding loans, educational loans, and more. All of these loans come under one of two categories, which are secured or unsecured loans. The type of loan that will be best suited to your needs will depend upon a number of factors, and by ensuring that you select the right type of loan you can enjoy affordable repayments and value for money on your borrowing.

There are a number of pros and cons with both secured and unsecured finance, and you should make sure that you familiarise yourself with both the advantages and the disadvantages before you make any decision. Of course, you may find that you are only eligible to apply for one type of loan, which means that you have less choice when it comes to finding a suitable loan package. You will find that there are general eligibility requirements that apply to all secured or unsecured loan, along with eligibility requirements that are specific to each lender.

One thing to bear in mind is that no matter which type of loan you go for the deals and interest rates that are charged can vary greatly from one lender to another. You therefore need to make sure that you compare a variety of loan deals from a number of lenders in order to maximize your chances of getting the best value deal on your borrowing. You can compare a variety of secured and unsecured loans with ease and convenience using the Internet, which will allow you to browse and compare loans from the comfort and privacy of your own home. However, you should refrain from applying for multiple loans, despite the ease of convenience of being able to do this online, as you may find that you get rejected and this could adversely affect your credit.

Secured loans

Secured loans are loans that are secured against your home, and therefore these loans are only available to homeowners. It is important to remember that failure to keep up with repayments on s secured loan could result in the loss of your home, and therefore you should never into this type of loan without giving it very careful consideration and ensuring that you can afford the repayments comfortably. Secured loans can be very effective borrowing solutions for those looking to raise money, particularly in light of the rising value of properties and the higher equity levels that homeowners in the UK are currently able to enjoy.

There are a number of main benefits to choosing a secured loan over an unsecured one. Firstly, the borrowing power with these loans can be far higher, although the amount that you will actually be able to borrow will depend on your financial status and your equity levels. You can work out the equity in your home by deducting the balance of any mortgage or other secured loan from the market value of your property. Your credit rating will also determine the amount that you can borrow as well as the interest rate that is charged. The good news is that secured loans are often available to those with poor credit, as the secured nature of the loan makes it a lower risk for the lender.

Another main benefit with secured loans is that there are far longer repayment periods on offer than with unsecured loans, and this means that you can spread your borrowing over a longer period and reduce the amount that you have to repay each month. Many lenders offer up to 25 or 30 years by way of a repayment period, whereas with unsecured loans the maximum repayment term is usually between f5-7 years, although some lenders will offer up to 10 years.

There are, of course, disadvantages to opting for a secured loan, and the main one is that you are risking your home if you are unable to keep up with repayments on your secured loan. Another thing to be careful of is going into negative equity. If you take out a secured loan against the equity in your home, and then house prices fall, you could find that you owe more on your mortgage and secured loan than the property is actually worth.

Unsecured loans

An unsecured loan is not secured against any asset, and this means that you do not have to be a homeowner in order to take out one of these loans. However, in most cases you will need to have a good credit rating, as the lender has nothing to fall back on in the event that you default on your loan and therefore most will not take a risk on bad credit consumers. 

The benefits of opting for an unsecured loan include competitive interest rates and fixed rates, which means that your repayments will stay the same throughout the term of the loan. The shorter repayment periods mean that you will be free of debt more quickly, and if you do end up missing repayments you won’t be risking your home – although, as with any other type of finance that you default on you will be risking your credit.

On the downside, the borrowing power with an unsecured loan is weaker than with a secured loan, and the reduced repayment periods mean that your monthly repayments are likely to be far higher than they would be for the same amount on a secured basis.