Secured Loans vs Unsecured Loans

Secured loans are a way of borrowing money for which you have to provide an asset as a security. The asset can be your house or a car, the interest rates are usually lower than unsecured loans. To get unsecured loans you do not need an asset, the lenders provide a loan to you without any guarantor.

Secured Loans

In secured loans, you can borrow an amount ranging from £2,000 to £50,000. Though the lender considers other factors like your income and the value of your asset which you are providing as a collateral. The exact approved amount is decided on these two main factors. The main reason why secured loans are cheap is that you are providing an asset, the lenders find this less risky than unsecured loans. However, you are at risk of losing your asset if your repayments are not on time or have missed it for several months. There are different forms of secured loans like;

Secured personal loans
Homeowner loans
Debt consolidation loans
Secured credit cards

Pros and Cons of Secured Loans

Pros –

You have to pay back with a lower interest rate
Borrow a large amount of money compared to unsecured loans
You can get a secured loan even if you have a poor credit, as you’re providing a collateral
Payments are spread over months so you have time to pay back the loan amount without running into a financial crisis

Cons –

You can lose your asset if you miss the repayments for several months
The interest rates can vary when it comes to secured loans. So make sure to check if the interest rate is fixed or not

Unsecured Loans

Unsecured loans are loans which you get from a lender without any collateral. You borrow money and make repayments till it’s paid in full. As you are not providing anything as a security, the interest rates are higher compared to secured loans. If you miss your repayments of unsecured loans, you have to pay additional charges apart from the loan amount. The lender can take you to court if you don’t pay his loan amount back. The amount that you can borrow is not high as secured loans. So, “How much can I borrow in unsecured loans?” is the question that people ask lenders often. The answer to that is, up to £3,000, lowest you can borrow is £100. So, if your money requirement is small and you don’t need a heavy amount you can go for unsecured loans.

Pros and Cons of Unsecured Loans

Pros –

As you are not providing an asset, there is no risk of losing anything if you default on your loan
Unsecured loans are a solution to people who are looking to borrow a small amount
The application process is simple than secured loans

Cons –

The interest rates are higher compared to secured loans
The repayment period is short, usually months
In unsecured loans the amount is limited, sometimes it may not be the amount that you were looking to borrow