Secured V Unsecured Loans: What's the Difference?

By: Andrew Regan

These days, more and more people are arranging finance for a range of reasons: holidays, a new car, home improvements; the list is endless. In order to offer consumers the widest possible choice of financial products, many companies now offer customers several different types of loan from which they can choose; the most popular type of loans being secured loans and unsecured loans.

A secured loan, for example, is a loan which requires the borrower to provide the lender with some form of security. Most often, the security levied is the borrower's property - regardless of whether it is mortgaged or is owned outright. A loan secured on a mortgaged property is known as a 'second charge', whereas a loan secured on a property that is owned outright is known as a 'first charge'.

Secured loans are most often associated with homeowners and mortgage payers, with loans available in varying amounts and for many different purposes, including debt consolidation. Available amounts range from ?3000 to ?50000, although some lenders will consider lending up to ?100000 with repayment terms typically ranging from 3 years to 25 years. However, you might incur a penalty fee if you repay your loan earlier than agreed with your lender.

Depending on the amount of money you borrow, lenders will charge interest, which is referred to as the Annual Percentage Rate (A.P.R). The amount of money lenders will allow you to borrow, the A.P.R and the repayment terms will all depend on the amount of equity you have in your property, the lender's assessment of your ability to repay the loan and your personal circumstances. Most lenders will also conduct a credit search in order to check your credit worthiness and repayment history for any other financial products you may hold, such as catalogues or credit cards. The security offered can also mean that the rate offered by a lender on a secured loan is a lot smaller than it would be through an unsecured loan.

Unsecured loans, on the other hand, do not require the borrower to put up any form of security against the loan. However, the amount available through an unsecured loan is much smaller than through a secured loan; while the repayment terms are often shorter and interest rates higher. This means paying off an unsecured loan is likely to cost more money that a similar secured loan.

Generally, a secured loan is much easier to obtain than an unsecured loan. This is because the lender has the added benefit of security, which provides the lender with protection in the event the borrower is unable to repay. Unfortunately, this means that should the borrower fail to meet repayments, the lender can make a claim against the security in order to recoup their losses - often resulting in the debtor losing their home. As a result, it is advisable to make sure your repayments are covered by a protection plan that can meet your loan repayments in the event you fall ill, or are unable to work.

are a quick and convenient way to raise money for a short-term financial need while allowing you to spread repayments over a greater period of time. In essence, a secured loan enables homeowners to unlock the money stored in their greatest asset - their home.

Whether you are looking for an unsecured or secured loan, be sure to check the range of resources available on the internet, including financial comparison sites, such as Moneynet. These sites can search through the vast array of available offers on unsecured and secured loans and can provide helpful information on the loan products available - helping to find the right loan for your own personal circumstances.

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