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Secured versus personal loans: de-mystified

Secured Loans versus Personal Loans

Secured Loans > Our Loans > Homeowner Loans > Secured versus Personal loans

Choosing between personal and secured loans can be a confusing process. We’re often asked about the differences between each product, and how to decide which one is right for you.
Always remember that choosing a loan option that is not best suited to your personal circumstances could have negative impact on your financial wellbeing.
Once the differences between these loans are clear, it’s far easier to make the right borrowing decision.

What is a personal loan?

Personal loans typically range between £5,000–£50,000 and are not backed by any assets or capital, such as property or vehicle. That’s why they are also known as unsecured loans.

Acquiring this type of funding can be relatively easy to obtain for those with a reasonable credit score. Repayment terms for a personal loan can be both at a fixed and variable rate of interest, and can be paid over a flexible term, usually 1 – 7 years, depending on the amount borrowed. Failure to make these repayments can incur additional charges.

Before deciding on a personal loan, it is first necessary to weigh up your financial situation, and estimate how much you can realistically afford to repay. Never let the desire or urge to splurge on costly purchases cloud your judgement.

What is a secured loan?

Secured loans are credit agreements only available to homeowners or mortgage holders.
The amount available to borrow is significantly higher than personal loans (typically up to £250,000) as it is backed or ‘secured’ by the value of your property. That’s why they are also known as second mortgages.

A secured loan may be your best option for several reasons…

  • Available to those with a poor credit rating
  • Longer repayment period (can range between 1–25 years)
  • Often used to consolidate existing debt into a single monthly repayment
  • Fund major home improvements or significant purchases

The repayment period for secured loans is generally much longer than personal loans, which has a few implications for the borrower. Opting for a longer repayment period means the cost repayable per month can be lower than a personal loan.

You might require a secured loan to cover the cost of…

  • Home improvements
  • New car
  • Special occasions (e.g. wedding or holiday)
  • Debt consolidation

You can use our nifty secured loan calculator as a guide to work out the amount you wish to borrow and a repayment timeline that works for you.
Always be aware that continual failure to repay loan installments could mean your property is at risk of repossession. Furthermore, if you are thinking of consolidating existing lines of credit, this might end up extending the terms of debt and the total amount due. This is the main legal risk you take with a secured loan.

Which option is right for you?

Before deciding on a loan option, make sure you fully understand the differences between personal and secured loans, and how each option serves your individual circumstances. If you have a satisfactory credit score and are looking to obtain a loan to cover the cost of a new car, holiday or special occasion – a personal loan might be your best option. If you’re a homeowner, or have a poor credit history, a secured loan might be right for you.

personal versus secured loans
Warning: Late payment can cause you serious money problems. For help, go to moneyhelper.org.uk
Representative 28.96% APRC (Variable) - For a typical loan of £20,950 over 85 months with a variable interest rate of 23.00% per annum, your monthly repayments would be £537.44. Including a Product Fee of £2,095.00 (10% of the loan amount) and a Lending Fee of £714.00, the total amount repayable is £45,682.15. Annual Interest Rates ranging from 11.7% to 46.5% (variable). Maximum 50.00% APRC. The loan must be paid back by your 70th birthday. Read more.

Think carefully before securing debts against your home your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
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