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Secured Loans

It is often essential to raise finance for major purchases including for example house related investments such as adding a conservatory or a loft extension. One method for raising this finance is to borrow money with security put down against the loan. This effectively guarantees the loan by assigning rights to the security in the event of a loan default. Such a loan backed by collateral is usually called a secured loan.

One of the most frequently used assets as security in such an arrangement is a house, or that portion of the equity in a house which is not already granted as security for other loans. This type of loan is usually quicker to arrange and more attractive interest rates are available as it is a safer proposition for the lender. In nearly all circumstances the lender will be able to recover their money. Because of the lesser risk profile of the secured loan it will often be attractive to those with a less than perfect credit history. The secured loan is therefore an option for those with equity tied up in property who are seeking low interest rates or have experienced problems getting an unsecured loan, or for whom an unsecured loan is not otherwise an option.

Secured loans can usually be arranged without punitive fees like those which a standard remortgage will attract. For this reason it is often a preferred route for those seeking to release capital from their real estate investments.

The capital which a secured loan releases can usually be used for any purpose including home improvements, buying a car, take a once in a lifetime holiday, and management or consolidation of other debts. By consolidating many short term debts into one larger long term secured loan the monthly payments to service the debt can be substantially reduced making a significant difference to the month to month finances of the debtor.

Unsecured Loans

Unlike a secured loan, an unsecured loan does not require you to have property to use as collateral for the loan. This type of loan is not secured against your assets, it is therefore more of a risk for the lending institution and more stringent criteria are used to assess applications. It is important that the lender can see evidence of a good credit history and earnings sufficient to meet regular loan repayments.

Lenders include high street banks and building societies but you may find that specialist lenders are able to offer a loan to you where the high street branches are unable to due to their less restrictive criteria or through their specialism in a particular type of borrower, e.g. the self employed, company directors, tenants, students or people with mortgage arrears, an adverse credit history and County Court Judgements (CCJ's).

Without onerous requirements for arranging security an unsecured loan is relatively quick to arrange and funds can be made available often within 24 or 48 hours of being accepted by the lender. The terms of the loan will reflect the risk profile of unsecured loans however and characteristically will allow lesser amounts to be borrowed and a higher rate of interest. An unsecured loan will usually have a fixed term and a fixed interest rate and is generally repaid monthly. Some lenders allow payment holidays and some will allow penalty free early repayment. Remember to shop around for the best unsecured loan deal.

An unsecured loan is therefore suitable for those looking to borrow up to around £15,000 and who have a good credit history and obvious ability to make repayments. As the size of the loan is generally smaller than that of a secured loan the term of the loan will often be shorter, usually up to 5 or 10 years.

While security over your home is not required lenders often prefer homeowners to other borrowers. It may seem that an unsecured loan is less risky to the borrower as the loan is not secured against their house. In reality you should, as with any loan, be vigilant to meet your payment obligations because court proceedings used to recover outstanding balances will inevitably take your assets into account.

An unsecured loan can be used for a variety of purposes including for example buying a car, going on a holiday, home improvements or debt management and consolidation.