Difference between Secured and Unsecured loans

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What are the Differences between Secured Loans and Unsecured Loans?

It's sometimes difficult to know which is the more suitable option for you so we hope this guide will give you some idea as to which is better for you. Here are some points to bear in mind:

Secured Loans Usually have Lower Rates
Perhaps the main reason why people choose a secured loan – often referred to as a homeowner loan – over an unsecured loan is the fact that a secured loan offers much lower interest rates, therefore meaning that the amount that is eventually paid back will be much lower. This is because a lender can be sure that they have some collateral against the loan – the home – and can get their money back in the event that repayments are not kept up. With an unsecured loan, there is no guarantee that the lender will easily receive their money back, therefore meaning that they have to balance out the risk by adding interest to the loan, therefore making the deal worthwhile for them.

Secured loans allow you borrow larger amounts
While an Unsecured Loan will generally be no more than £30,000 -and you would need a big income and very clean credit to get that loan - a secured loan can, in theory, be arranged for any amount up to £2,500,000. With the larger amount comes a longer repayment term (up to 25 years) whereas Unsecured loans go no longer than 5 years.

Unsecured loans can be arranged faster
If you are in need of a quick cash injection, then unsecured loans are without doubt the best way to go. They can be arranged almost instantly due to the fact that massive amounts of background checks are not needed, unlike secured loans where the homeowner's equity must be thoroughly checked. However, it must be remembered that sometimes it pays to wait a little longer and to get a secured loan, as rushing into an agreement is often a surefire way of getting burned.

I'm Worried About Losing my Home
If you are worried about losing your home due to taking out a loan, then the fact is that you probably aren't in the position to take a loan out – even unsecured loans must be paid back and just because your home isn't at risk, the financial implications of not keeping up repayments can be severe. If, however, a loan is your only option then an unsecured loan is the best way to go – the lender does not have the recourse to forcibly sell your home should repayments not be made and therefore it is safe whatever happens.

Which Costs More to Set Up?
Due to the bureaucracy that surrounds the setting up of a homeowner loan – such as the checks that are needed and the amount of time that this takes – this type of loan will undoubtedly cost more to set up. Unsecured loans are much faster and require fewer checks, therefore meaning that fees are often non-existent. It is wrong to assume that this makes unsecured loans cheaper though, as in the long term the fees will be recouped on secured loans and they will turn out to be cheaper. As already stated, sometimes it makes financial sense to wait for secured loans instead of rushing into an unsecured loan so as to get to money quickly.

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Frequently Asked Questions

What does a Secured Loan cost?    

The rate of the loan will depend on your circumstances (loan size, LTV, income and credit score). A broker fee is also charged to cover valuation and legal expenses and it is usually 7-10% of the loan (lower for larger loans). This fee is usually added to the loan so not payable up front

Will I be required to put a charge on my property?    

In almost all cases yes (the exception is some smaller loans of less than £10,000)

Can I use a Secured Loan to consolidate other debts?    

Yes. This is one of the best uses of a Secured Loan. You can pay off credit card and other expensive debts and consolidate into one monthly payment at a lower rate

If I have bad credit, can I still get a Secured Loans?    

Yes, you can as long as you have sufficient equity in your property and sufficient income to make the repayments. Taking a Secured Loan and maintaining repayments can help improve your credit score.

Can I repay early?    

Yes. Most lenders allow you repay early by giving one month’s notice and paying one month’s payment as a penalty

Is a Secured Loan cheaper than a mortgage?    

This depends on your circumstances. A mortgage or re-mortgage may be the better option for you but a qualified mortgage adviser can advise you better on this.

Will the interest rate be fixed?    

Typically it will be variable, but you can get options to fix for 3 or 5 years.

If I default on the loan, might I lose my house?    

Yes, this is possible. We recommend you think very carefully before securing any debt on your property.

I have a Buy To Let property, can I still get a Secured Loan on that?    

Yes. There are several lenders who will so a second charge secured loan on a BTL property.

Choice Loans has great access to all the secured loan lenders in the market. There are over 25 in total, including many private lenders. Apply with us you’ll get the best opportunity to find the cheapest rate available. Get in touch for a no cost and no obligation assessment. Should you wish to proceed we’ll guide you through the process, assisting you with the paperwork and advising you every step of the way.

For Third Charge Secured Loans, click this link to learn what is available

We can also arrange Secured Loans in Northern Ireland. Click the link for more information

If you have any queries, please fill in the form opposite or call us on 01494 410 125


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What is needed to apply

Applying for a Secured Loan is very easy. Below are listed the things you need in order to apply.

  • Eligibility CriteriaYou must be a home owner and be earning sufficient income to afford the loan. How much you can get and at what rate then depends on your credit score.
  • Documents RequiredInitially it is just an online application form but once we know the specific lender best suited to you, you will need to complete their application form and show proof of ID and income.
  • Additional CommentsThe process take 2-3 weeks but you will be guided through it by an expert from start to finish.

Whether you get an unsecured or secured loan will depend on how much you want and what you can afford each month. Obviously you need to be a home owner for a secured loan (and you need to have a mortgage as a secured loan must be a second charge and you can't have a second charge unless you have a first) but if you decide to go down this road there are 20+ lenders to choose from. It is a very competitive market.

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