A Secured Or Unsecured Loan - What’s The Difference?
One of the questions that you have to ask yourself when considering taking out a loan is whether you will fare better with a secured or an unsecured loan. Of course, you may find that you are only eligible for an unsecured loan, as you need to be a homeowner in order to qualify for a secured loan. Then again, you may find that you are only eligible for a secured loan as you will often need to have good credit in order to get an unsecured loan.
Although both secured and unsecured loans can prove to be effective ways of raising finance, there are some key differences that you have to consider before you can determine which loan is the most suitable and viable one for your needs and circumstances. By making sure that you research these loan types thoroughly you can ensure that you familiarise yourself with the eligibility as well as the suitability of the different loan types.
Secured loans
A secured loan is a loan that is only available to homeowners, and this is because these loans are secured against the property. There are some key advantages to choosing a secured loan over an unsecured loan if you have the option, and two of the main advantages are greater borrowing power depending on your equity levels, and longer repayment periods, which can help to keep your monthly outgoings down.
If you have bad credit but you are a homeowner with some level of equity in your home you may still be able to get a secured loan, even if you have found it impossible to get an unsecured loan. With a secured loan you need to make sure that you can comfortably afford the repayments, as failure to keep up with repayments on these loans could result in you losing your home due to the secured nature of the loan.
Unsecured loans
An unsecured loan is available to both non-homeowners and homeowners, but in order to qualify for an affordable unsecured loan you will usually need to have pretty good credit - those with bad credit may find that they can only get an unsecured loan with a very high rate, or in some cases cannot get one at all.
Unsecured loans are usually available for a maximum of five or seven years, although some lenders offer them for up to ten years. The borrowing power is not as great as with secured loans, with most lenders offering a maximum of £25,000. On the upside there is no risk to any asset, as these loans are based on contract and not secured against your home.
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