Secured loan or personal loan: which should you take out?


Secured loan or personal loan: which should you take out?

When you’re looking at borrowing money, you’ll probably see the terms ‘secured loans’ and ‘personal loans’ mentioned, although you might not be sure what they mean. But what are the differences between these two types of loans?

Secured loans and unsecured personal loans are two very different things and each one is suited for different situations and different groups of people. Let’s take a look at the benefits and the risks of each type of loan, and we’ll also see how secured loans could be suitable if you’ve had problems with credit in the past.

Secured loan

You might have heard a secured loan described as a homeowner loan – they are the same thing. They can only be used by homeowners as the loan has to be secured against your property, in the same way that a mortgage is. And, like a mortgage, if you don’t keep up with the repayments then your home is at risk.

With this risk in mind, you might think that it’s always better to take out an unsecured loan over a secured one. However, there are benefits to taking out a secured loan. You can usually borrow more on a secured loan and spread the repayments over a longer period of time. They also may be more suitable if you’ve had problems with credit in the past, and because the lender has the security of securing the loan against your property, you might find it easier to get accepted for a secured loan at a lower APR than an unsecured one.

Don’t worry if you’ve already got a mortgage, you can still take out a secured loan, they’re known as 2nd charge loans.

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Personal loan

If you’re looking to borrow a smaller sum of money, you could consider an unsecured personal loan instead. They’re usually suitable for people with a good or fair history of using credit, and they’re generally one of the cheapest ways to borrow.

Unsecured loans tend to have a shorter term than secured – typically between two and five years compared with up to 25 as you’re borrowing less.

Which loan to take

As you can see, there’s no easy answer about whether secured loans or personal loans are a better form of borrowing. You won’t be able to consider a secured loan unless you’re a homeowner and if you’ve got a good to fair credit rating, it might be worth thinking about a personal loan instead. However, if you’ve had a patchy history with credit and you’d like to repay over a longer amount of time, a secured loan might be more appropriate.

If you’re a homeowner, you could also consider taking out a remortgage to release some equity from your house. This might be a cheaper way to borrow and you could pay back what you owe over a longer period of time, but remember – if you don’t keep up with your repayments, your home could be repossessed.

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