Secured or personal loan - which is right for you?
Which type of loan suits you?
Our guide will help you understand both secured and personal loans – and which option could be right for you.
Loans can come in different shapes and sizes. They can come with varying interest rates, some could require a guarantor, and others are secured against your home.
In this guide, we take a look at personal vs secured loans – and which could be the better option for you.
What’s the difference between a secured and a personal loan?
The difference between a secured and personal loan is in the name – a secured loan is secured against something you own, while a personal loan isn’t secured against anything.
With a secured loan, the money you borrow is usually secured against your home. That’s why you might often hear a secured loan being called a ‘homeowner loan’ instead. As the loan is secured against your home, the lender could repossess your home if you repeatedly miss your repayments.
Whether your loan is secured or not can mean there are certain differences between the two. For example:
The amount you can borrow
The amount you can borrow with either type of loan will ultimately depend on your lender and your eligibility.
However, you can typically borrow more money with a secured loan compared to a personal loan. Secured loans are often used to borrow more than £10,000 – which would be uncommon for a personal loan.
The amount of risk
While there might be less risk for the lender, you’re taking on more risk with a secured loan.
With personal loans, you could face legal action if you don’t meet your repayments. However, the consequences of not meeting secured loan repayments could be more severe. If you repeatedly miss your secured loan repayments, your home may be repossessed.
That’s why it’s important to only ever apply for a secured loan if you’re completely confident you can keep up with the repayments. And, if you think you might have trouble with the repayments, to speak to your lender as soon as you can – they could help you before the situation escalates.
The interest rates
Another difference you might find comparing secured or personal loans is the interest rates that are available to you. Because you’re taking on more risk with a secured loan, you could receive lower interest rates.
Personal loan interest rates can be fairly high if you have a bad credit score. This is because, for personal loans, your credit score is the main factor which determines how risky you are – and a poor credit score suggests you might not repay your debts on time.
With secured loans, though, you could be seen as less of a risky applicant when you offer your home as security. Plus, while your credit score and affordability still impact the rates you receive, the equity you have in your home can also be a factor.
This means secured loans often have lower interest rates compared to personal loans – even if you have a poor credit score.
Should I choose a secured or personal loan?
Whether you chose a secured or personal loan entirely depends on you and your circumstances. To help you decide which could be the better choice for you, ask yourself these key questions:
Do you own your own home?
This can be the biggest deciding factor when it comes to choosing your type of loan. If you have a mortgage, you could apply for either a secured or a personal loan. However, if you haven’t stepped onto the property ladder yet, it’s unlikely you’ll be able to apply for a standard secured loan.
What’s your credit score?
Your credit score is an important part of any loan application – whether you’ve chosen a secured or personal loan.
However, a bad credit score can be more of a factor when it comes to personal loans. As mentioned earlier, your credit history can play a bigger role when you apply for a personal loan.
So, if you’re a homeowner and you have a bad credit score, you might find it’s easier to be accepted for a secured loan.
How much do you want to borrow?
How much you’re planning to borrow will also affect whether you choose a secured or personal loan.
For smaller purchases, like a new laptop for work or money to repair your car, a personal loan could make more sense. Personal loans typically start from a few hundred pounds up to several thousands. It’s unlikely that you’d find a personal loan that allows you to borrow more than £35,000.
On the other hand, a secured loan is ideal for covering bigger costs. If you’re looking to borrow enough for major home renovations or debt consolidation, a secured loan could help you. For example, you could borrow up to £50,000 to cover bigger projects with Evolution Money.
How long would you like to repay the loan?
Some personal loans can be paid off in as little as a month, whilst secured loans can be repaid over many years.
If you’d like to repay your loan as soon as possible, you might find that a personal loan offers shorter repayment terms. Alternatively, if you’d rather benefit from smaller monthly repayments, you could spread the cost over 20 years or more with a secured loan.
At Evolution Money, you can choose to spread the cost over a term that suits you, from 1 to 20 years. Remember, it’s worth bearing in mind that longer repayment terms can mean more interest paid in total.
Finding the right secured loan for you
At Evolution Money, we specialise in offering simple and affordable secured loans. If you’ve read our guide and decided a secured loan is right for you, we’ll work with you to find a loan that suits you and your lifestyle.
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