Secured or Unsecured Personal Loan?
Secured or Unsecured Loans - Whats the difference?
When looking for a cheap personal loan, you may come across terms or financial jargon which can be confusing. One of these terms is secured or unsecured personal loans.
Before we look more into why a bank or lender might require security, lets look at what it means to have a secured or unsecured loan.
Secured Personal Loan
A secured loan is one which the bank or lender requires a security (usually property) against which they will lend you money. This basically ensures you repay the loan or else the bank or lender may have the right to get back what you owe against the value of the property you signed over as security.
Unsecured Personal Loan
An unsecured loan is one where the bank or lender do not require any form of security against which to lend you money.
So now that we understand the difference which is the best option and what might be the requirements for secured or unsecured loans.
Unsecured loans are typically for lower value loans such as those up to £10,000 or £15,000. Of course they represent increased risk to the bank or lender since if you do not pay, they have no guaranteed way to regain the lost capital. For this reason they will often make careful credit checks and may attach a higher interest rate to the loan because of the increased risk. Of course, the risk to the bank is your advantage since if you get stuck with the repayment of the loan you won’t have put any property at risk (although other factors such as your credit rating will likely suffer and the lender may pursue you through legal channels to collect the lost capital. This may make it difficult for you to get credit again in the future).
Secured loans are usually suitable for larger projects where you need to borrow extra cash for example £25,000 or £50,000. Of course it depends on the value of the property that you might be putting up for security as to exactly how much you could borrow. These types of loans are sometimes suitable for those with a poor credit record or those with CCJ’s since the putting up of security is peace of mind for the lender that they can reclaim their money if you default.
When considering whether to get a secured or unsecured loan, the amount required is going to be the main driving factor followed by your credit history. If a large loan is required you will probably have no option but to go the secured route. Smaller loans are usually better unsecured, however as detailed above your credit history may dictate whether you will qualify for an unsecured loan.
