Should I choose a secured or unsecured loan?

Should I choose a secured or unsecured loan?

Types of secured loan

Homeowner : These loans are secured against your property and are often for larger sums over ?25,000, although you can borrow as little as ?7,500. They can last for anywhere from 3 to 25 years.

Logbook: These loans are secured against your vehicle and the money you borrow can be used for any purpose. You may be able to borrow 50% or more of your vehicle’s value. They can usually be taken out for up to five years. Logbook loans tend to have relatively high interest rates.

Vehicle finance : These loans are secured against the vehicle you buy using a finance agreement. Once you have made the final payment you will own the vehicle. The loan could last for one to five years.

Bridging : These loans are usually secured against your property and are normally large loans to bridge the gap before other finance is available – for example, if you need to buy a new home before your current one is sold. They tend to have higher interest rates than other types of loan but are designed to be taken out over short periods, which could be as short as a day although 12 months is common. You’ll need an exit strategy for how you intend to pay off the loan when you take one out.

Debt consolidation : Secured loans can often be used for debt https://www.paydayloansohio.net/cities/sandusky/ consolidation. The loan is secured against your property, or sometimes other assets, to pay off existing debts with the aim of reducing your monthly repayments.

Types of unsecured loan

Personal : These loans let you borrow a cash lump sum and pay the money back over an agreed amount of time.

Guarantor : These loans allow you to borrow money with the help of a friend or family member who guarantees to pay back the loan if you can’t.

Peer to peer : These loans allow you to borrow money from other people online in exchange for a return on their money from the interest you pay.

Debt consolidation : Unsecured loans can often be used to pay off your existing debts to make them easier to manage and cheaper to pay back.

What are the risks?

You could take on borrowing you can’t afford, although the lender must check that you can afford to pay the loan back when you apply

You could be taken to court if you default on the loan, which is normally considered to be the case once you’ve missed payments for three to six months

Secured loans also put your belongings at risk, because the lender can repossess whatever you have chosen to list as security for the loan if you can’t pay it back.

If there are two identical loans but one is secured and the other unsecured, conventional wisdom suggests picking the unsecured loan.

This is because the secured loan is tied to your property or another asset so puts it at risk if something were to go wrong and you couldn’t pay the loan back.

Secured vs unsecured loans FAQs

Unsecured loans tend to be quicker because the lender doesn’t need to check the value of your security when you apply.

Yes, you can get a joint loan for both. If you apply for a secured loan with someone else they will need to also own the property you use as security.

Need a loan? Compare loan lenders side by side to find one that is cheap to pay back, lets you borrow what you need and has repayments you can afford.