When looking at a secured loan vs an unsecured loan, there are several things to take into account.
If you’re looking to borrow from £500 to £35,000 then an unsecured loan could be an option for you. With an unsecured loan, you don’t need to secure the loan against an asset, like your home. The lender will simply lend you the money, and you’ll repay it in regular monthly instalments, plus interest. For this reason, unsecured loans are quicker to set up than secured loans and you could have the money in your account the same day.
The rate you are offered for an unsecured loan will depend on your credit score and individual circumstances. You can use an unsecured loan for any legal purpose, such as consolidating your debts, making home improvements, buying a new car or spreading the cost of a holiday or wedding. Unsecured loan repayment terms range from 1 to 7 years.
To be eligible for a secured loan (or homeowner loan), you need to be a homeowner. This is because the loan will be secured against your property, meaning the lender can take your property to recover their costs if you can’t repay what you owe.
Secured loans are used to borrow larger sums of money than unsecured loans, with loan sizes ranging from £5,000 to £500,000+. This is why the lender requires the loan to be secured against an asset. With a secured loan loan, you can receive advice from a qualified adviser on which loan option is before for you and your circumstances, as well as benefit from much longer repayment terms, ranging from 1 to 30 years.
The most common uses of a secured loan are to consolidate debts or make home improvements, however they can be used for any legal purpose. Although your credit score does impact the rate you’re offered for a secured loan, there are also other factors involved such as the amount of equity you have in your home.
Choosing the Right Loan for You
Which type of loan is right for you will ultimately come down to what’s best for you and your circumstances. You may prefer to opt for your lowest rate loan offer knowing it is the cheapest option. However, you may want to lower your monthly repayments by spreading your costs out over a longer period of time. Although this means you’ll pay back more overall, it could make your day-to-day costs more manageable. Finally, you may simply decide to go for the loan option that you’re most eligible for to reduce the chance of having a credit rejection recorded on your credit file. Whatever you choose, just make sure it is the right decision for you.
Before agreeing a loan, it is absolutely vital to make sure that the secured or unsecured loan you go for is right for you. If you would like independent advice, it is possible to contact Money Helper. Money Helper is an independent service that offers free, impartial advice. Call 0300 500 5000 or visit the Money Helper website.