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Glossary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured loans vs. unsecured loans

Secured Loans vs. Unsecured Loans

If you are new to borrowing money, the process of taking out loans and the numerous options on offer can be confusing.  Although there are many different reasons why people take out loans—to buy a new car, for home improvements, to develop their career or to finance a lavish wedding—there really are only two types you need to understand. They are: 

  • Secured loans

  • Unsecured loans

Secured loans are loans whereby the lender requires the borrower to put up a valuable asset to be used as security or collateral to protect against defaults in repayments.  On the contrary, when taking out unsecured loans, the lender does not require any collateral. However, you must have a strong credit history to be granted an unsecured loan.

Information on secured loans

When taking out secured loans, you can put up any valuable asset to be used as collateral. Some of the more common assets which borrowers generally use as security are:

  • their home or other type of property

  • their car

  • other personal treasures such as a highly-valued piece of art or diamonds

Be extra careful if you decide to put up your home as collateral against secured loans. Remember that if you fail to make your regular repayments by the due date, you could ultimately lose your home. Think carefully as this can be risk that you may not want to take.

As long as you and your chosen lender can agree on a valuable asset to use as collateral against secured loans, there is no real limit to the sum of money that you can borrow, provided the secured loan amount does not exceed the monetary value of the collateral. Even borrowers who are considered high risk—such as the self-employed—can obtain a secured loan as long as they have a piece of collateral to offer up as security. 

Secured loans can take a longer time to process as there are additional arrangements to be made for the collateral involved. If you need a secured loan, make sure you give yourself plenty of time to apply.

Information on unsecured loans

Most unsecured loan providers are prepared to offer you finance as long as you are gainfully employed and have a permanent address.

Many lenders of unsecured loans limit their lending to no more than £15,000 to £20,000. Unsecured loans normally carry a fixed term and a fixed interest rateUnsecured loans can normally be processed quickly (often in a few days) as there are no collateral arrangements to make.

Who offers secured and unsecured loans?

Whether you decide to choose secured loans or unsecured loans, you can approach any of the following organisations. These lenders will be able to listen to your needs and find a loan to suit your circumstances:

  • Online loan providers

  • High Street Banks

  • Building societies

  • Specialist lenders

Many secured loans and unsecured loans borrowers are attracted to using the services of online loan providers because:

  • They can offer more favourable deals with lower interest rates.

  • They can give you an instant or fast decision if your secured loan application has been approved.

Some useful advice about taking out both unsecured and secured loans:

  • Do not ask to borrow more than you can afford.

  • If possible, repay the full amount as quickly as possible, provided early repayment does not incur a penalty charge.

  • Read and understand the full terms and conditions before agreeing to any secured loans or unsecured loans.

  • Buying appropriate insurance can give you protection against unforeseen events such as accidents, illness or unemployment.

  • If you cannot repay, it is crucial to inform your lender and be honest and open about your situation.

Conclusion

The money you receive from taking out either secured loans or unsecured loans can be used to fund any type of purchase or finance any type of project including renovating your existing property, buying a holiday home, purchasing a luxury car or going on that dream holiday.

Whichever type of loan you decide on, it is a good idea to shop around and carefully consider loan factors such as repayment terms, interest rates, and penalties. Researching all these details will ensure you get the best secured loans or unsecured loans available to suit your budget and lifestyle. 

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