The Benefits of Secured vs Unsecured UK Loans
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There are two main types of UK loan, secured and unsecured. Each has their advantages and disadvantages and your credit will determine which one is available to you. The amount that you wish to borrow will also have a bearing on the case.
What is a secured loan?
This is a loan that is backed by your assets. Simply put in order to borrow a secure loan you will hand over the title deeds of your home or car to secure the loan.
The advantages of a secure UK loan are as follows:
The lender is at less risk so they will often lower the interest rate and initial fees for the loan. Monthly payments will be less. This will be easier on your budget and you will be able to pay off the loan sooner.
You can take out a larger amount. This means with a secured loan you will be able to take out larger loans for things like mortgages and home improvement loans.
The lender will allow you to take a longer time to pay the loan back and be more flexible in options. This will help you to manage your monthly payments better and will sometimes give you options to reduce them. The longer you have to repay the loan the smaller will be your monthly payments.
The disadvantages are:
Your assets are on the line and if you do not make the monthly payments on time you will lose your home, car or both. There is an urgency to pay your monthly payments for the loan and not default. If you miss your payments for any reason you can risk the lender taking your home and putting it up for sale.
What is an unsecured UK loan?
This is a loan that is borrowed against your personal earnings. This would generally include your wages and any personal income you might have. An example of an unsecured loan would be a personal loan.
The advantages of an unsecured loan are as follows:
It is often quicker to obtain
Because the amount is smaller it is easier to pay off
You can start off your credit history with a small personal loan so that it will be easier to borrow a larger loan
You will not lose any assets if you default in payment
The disadvantages are:
You are restricted to a fairly small loan
Interest is higher
There is a shorter time to repay the loan
The lender will not be able to give you so many options and you will not be able to reduce the monthly payments.
You will generally need a good credit history to be approved
These are the pros and cons of secured and unsecured loans. It will depend on your financial status and what you need your loan for as to which of these loans you will choose. It will also depend on whether you have any assets for the type of loan you will take.
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