Secured loans are only available to people that already have a mortgage.
Secured loans, like mortgages, are loans secured on a property. Secured loans are available for any purpose, including: debt consolidation, home improvements, cars, and weddings.
What is an unsecured loan
A personal loan and an unsecured loan are the same thing, but providers use the different names to describe the same product.
To apply for a personal loan you do not have to be a homeowner and the loan is not secured against any of your assets. Instead, a personal (or unsecured) loan provider will base their decision on granting you a personal loan by using your personal credit history. This is verified by a credit check to determine your credit rating.
Reason’s to take a secured loan instead of a unsecured loan
Secured loans are easier to obtain. As the loan is secured on your home it is not necessary to have a perfect credit score as the lender has the additional security of knowing their advance is guaranteed by your property.
Larger amounts may be borrowed: The maximum unsecured loan is £25,000, secured loans may be taken out up to (and sometimes over) £75,000. The amount that can be borrowed is dependent on the amount of equity in your property.
Lower monthly repayments: Monthly repayments are generally lower with a secured loan. This is primarily due to the fact that secured loans may be taken out over a longer period of time.
Borrowing over a longer period. Secured lenders prefer loans to last longer to help offset their hefty set-up costs, usually from five to 20 years. Unsecured lending is usually one to seven years. Borrowing for longer does reduce the monthly repayments, but substantially increases the total interest repaid.
The downside of taking a secured loan
The main risk involved with taking a secured loan is that if you fail to keep up with the monthly repayments you may lose your house.
However this is not the only issue that needs consideration when thinking of taking out a secured loan. Secured loans are often taken out for longer periods of time than unsecured loans so although monthly repayments may be smaller, the total amount repaid may be considerably more than for a shorter term loan.
The period you secure a loan for will often depend on the amount you can afford each month, and is one of the most important considerations.
Conclusion
The choice of which type of loan meets your needs may be decided by your personal circumstances, the amount you wish to borrow, how much you can afford each month and your credit score.
If you do have a choice between secured and unsecured borrowing the information above should help you decide which is the best choice for you.
Tim - The Home Loan Shop
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