Unsecured and secured loans are completely different money borrowing options, each featuring its own list of pros and cons depending on the individual borrower and his/her current circumstances. Knowing the difference between the two is important when choosing the right fit for you.
Secured Loan
A secured loan also referred to as a homeowner loan, is a loan that is attached to property owned by the borrower. This essentially means that only property owners or those in the process of buying a property may apply for this type of loan. This loan is also geared at individuals looking to borrow larger amounts, usually upwards of £5,000. The amount you can borrow, as well as the interest rate and the loan duration, depends on numerous factors, the main being your credit record and the amount of ‘free’ equity you have in your property. This refers to the difference between the value of your home and the amount still owing on your mortgage, should you have one.
Unsecured Loan
Unsecured personal loans are loans available to anyone with a full-time job and a fair credit score. The main difference between unsecured and secured loans is that you do not need to be a home or property owner to apply for this loan. Individuals can usually borrow anything up to £25,000 on an unsecured loan, depending on the company. This loan is usually riskier for the lender. Therefore, it is important to check the terms and conditions for additional fees, such as early repayment penalties.
As mentioned above, there are pros and cons to each of these options, which we will highlight below:
Pros and Cons of Secured Loans
+Secured loans are available for larger amounts, usually up to £25,000
+Borrowers with a less than squeaky-clean credit score may find it easier to get approval for a secured loan as opposed to an unsecured loan since your property acts as security
+Repayment periods are longer and generally more affordable, while the fixed monthly instalments make it easier to manage your repayment plan
-Your home or property is at stake, so you need to make sure you keep up repayments
-There could be additional fees and charges for things like early repayment as they have the potential to increase the cost of borrowing
Pros and Cons of Unsecured Loans
+More readily available to a wide range of individuals
+Loans are more flexible in terms of duration. Most borrowers make fixed repayments between one and five years.
+Some loans will give you a ‘payment holiday’ of up to a few months at the start of the agreement
-Interest rates are higher on smaller loans
-The best interest rate deals are only available to high credit scorers
The Final Word
As you can see, whether you choose an unsecured or secured loan is based on your current financial needs and circumstances. What’s important is that you shop around, speak to some experts and get the best advice from unsecured lenders UK before signing on the dotted line.
