What are the Differences between Secured Loans and Unsecured Loans?
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.
Which Allows More Money to be Borrowed?
Without doubt the most money available to be borrowed comes in the form of secured loans, as these typically allow the homeowner to borrow anything up to £200,000, obviously depending on the amount of equity that they have in their home. Additionally, a homeowner loan can also be paid off over a maximum of 25 years, while an unsecured loan is usually only available for repayment over a maximum of 7 years. Unsecured loans also only usually allow the person to borrow up to £20,000, which is obviously a lot less than a secured loan.
Which is Best to get Money Quickly?
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.