Understanding the Types of Personal Secured Loan

By: adam futter

There are two main types of personal loans in the UK namely, secured and unsecured. A personal secured loan is a loan whereby the borrower agrees to pledge an asset usually a house in return for a fixed or variable loan. This is very common in the UK and results in a borrower taking on secured debt. On the downside if a borrower fails to payback the loan his house and belongings may be seized and sold in order to payback the bank. The other type of loan is an unsecured personal loan. Here if the person fails to pay back the loan the bank doesn't have the right to sell any of your assets. At www.cheapinternetloans.co.uk we will find the best secured UK homeowner loan for you.

In terms of the borrower it may seem that a personal unsecured loan is best as there is no risk to any assets if you fail to repay the loan. However there is no such thing as a free lunch. Unsecured personal loans tend to have much higher rates of interest to compensate for the fact that no collateral is available to the bank if the loan isn't repaid. Banks tend to prefer issuing secured personal loans as there is very little risk to them. In order to encourage this type of loan interest rates tend to be far lower. This is the most common form of loan in the UK.

One must be very careful when taking out a UK personal secured loan, because if payments are not made on time, ones house, car or whatever the collateral was may be sold to pay off loan. It's strongly recommended only to take out this type of loan if you're near certain that you can make the repayments on time each month. Be very careful when borrowing for businesses whereby income can vary a large amount each month. If this is the case, make sure in months of strong income you put aside money to pay off the personal secured loan in months of poor income.

Another popular type of personal secured loan in the UK is a savings secured loan. Here you use your savings in your current bank account as a form of collateral. Your savings will be frozen but you will continue to gain interest on your savings. Often ones savings will not equal that of the secured loan, as if this were the case you could just use your savings to pay off the full debt, but banks are happy to use this form to secure you a loan.

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