Secured vs Unsecured Loans?
Whenever you borrow money the lender (ie. the bank, building society or loan company) will make the loan to you as either a secured or unsecured loan. As a general rule of thumb small loans less than £15,000 will be offered as unsecured and amounts above this as secured. All large loans to buy property are always secured and called mortgages.
What does Secured mean?
Basically it means the debt you have taken out from the lender has been guaranteed against some other valuable asset which you already own, normally property ie. your home. This means that the lender will of made something called a 'charge' over your property giving them the right to sell your home and use the money from the sale to clear your outstanding debt to them if you fail to keep up your loan repayments.This also means that if you are not a homeowner you will not be able to take out secured loans with the exception of taking out a mortgage where the debt is secured on the item you are buying ie. your house or in some forms of car finance again the loan is secured against the vehicle you are buying. It is very important that you understand fully the consequences of taking out a secured loan.
What does Secured mean?
Basically it means the debt you have taken out from the lender has been guaranteed against some other valuable asset which you already own, normally property ie. your home. This means that the lender will of made something called a 'charge' over your property giving them the right to sell your home and use the money from the sale to clear your outstanding debt to them if you fail to keep up your loan repayments.This also means that if you are not a homeowner you will not be able to take out secured loans with the exception of taking out a mortgage where the debt is secured on the item you are buying ie. your house or in some forms of car finance again the loan is secured against the vehicle you are buying. It is very important that you understand fully the consequences of taking out a secured loan.
Are there advantages for you if you take out a Secured Loan?
Well the answer is yes, sometimes. If you need to borrow money to buy a home (like virtually everyone else!) you will have no choice but to use a secured loan. Obviously no lender is going to risk loaning you a very large sum of money without having the back up of security. Generally speaking secured loans have lower interest rates than unsecured because they represent less risk for the lender.
An important exception to this however is in loans of £15,000 and under which are generally cheaper and easier to take out in unsecured form.
What are the disadvantages in taking out a Secured Loan?
Firstly there are normally a lot more costs involved in setting up the loan because of the legal work in securing the loan against your property. These costs get added into the loan repayments and form part of the APR so you may not actually be able to see them clearly. Secondly, secured loans are great for the lender, and lower their risk in lending you the money but they are far more riskier for you because if you do struggle to keep up your repayments your home or any other asset which has been used as security for the loan is at risk of being repossessed and sold. If a lender does repossess your home then as well the original outstanding debt you will be hit with a multitude of additional legal charges and late repayment charges. Then your home will normally be sold off through an auction where it will probably not achieve a great price and you only get back any monies left after all the above has been re-paid to the lender. This same principle applies to a loan secured against a new car purchase where the loan company and not you actually owns the title to the car, until you have fully repaid the total loan. Therefore if you default on the loan then the loan company can take the car away and recover the debt by selling it.
What are the advantages of Unsecured Loans?
Generally they are cheaper because they are much easier to set up with less administration costs. They are much safer for you because if the worst happens and you fall behind with repayments at least your home is not at risk.
Remember a secured loan means secure for the lender NOT for you
SimplifyLoans Top Tip: Generally try to borrow smaller amounts of money using unsecured loans, they are cheaper and safer for you.
Well the answer is yes, sometimes. If you need to borrow money to buy a home (like virtually everyone else!) you will have no choice but to use a secured loan. Obviously no lender is going to risk loaning you a very large sum of money without having the back up of security. Generally speaking secured loans have lower interest rates than unsecured because they represent less risk for the lender.
An important exception to this however is in loans of £15,000 and under which are generally cheaper and easier to take out in unsecured form.
What are the disadvantages in taking out a Secured Loan?
Firstly there are normally a lot more costs involved in setting up the loan because of the legal work in securing the loan against your property. These costs get added into the loan repayments and form part of the APR so you may not actually be able to see them clearly. Secondly, secured loans are great for the lender, and lower their risk in lending you the money but they are far more riskier for you because if you do struggle to keep up your repayments your home or any other asset which has been used as security for the loan is at risk of being repossessed and sold. If a lender does repossess your home then as well the original outstanding debt you will be hit with a multitude of additional legal charges and late repayment charges. Then your home will normally be sold off through an auction where it will probably not achieve a great price and you only get back any monies left after all the above has been re-paid to the lender. This same principle applies to a loan secured against a new car purchase where the loan company and not you actually owns the title to the car, until you have fully repaid the total loan. Therefore if you default on the loan then the loan company can take the car away and recover the debt by selling it.
What are the advantages of Unsecured Loans?
Generally they are cheaper because they are much easier to set up with less administration costs. They are much safer for you because if the worst happens and you fall behind with repayments at least your home is not at risk.
Remember a secured loan means secure for the lender NOT for you
SimplifyLoans Top Tip: Generally try to borrow smaller amounts of money using unsecured loans, they are cheaper and safer for you.