Advantages and disadvantages of a loan

There are many benefits of taking out a loan over other forms of credit, one of which is the ability to access the funds quicker, often at a better interest rate than a credit card. However, with a loan you need to be sure you can pay back the full amount you’ve agreed each month, as there isn’t an option to pay less or a pay a ‘minimum’ like there is with revolving credit.

5 min read
Advantages and disadvantages of a loan

There are also two types of loans to consider, secured loans and unsecured loans.

Compare the pros and cons of each:

  • Secured Loan
  • Unsecured Loan

Secured Loan

  • Amount of money you can borrow

    At Ocean Finance, we arrange secured loans of £10,000 to £500,000
  • Length of time you can borrow for

    Up to 30 years
  • Will I be charged repayment fees if I pay back early?

    Yes, but you can arrange secured loans with no early repayment charges
  • Interest rates

    Usually cheaper than unsecured loans, but they may be variable over time
  • Risk

    Whatever you use to secure the loan is at risk if you fail to keep up repayments

Unsecured Loans

  • Amount of money you can borrow

    At Ocean Finance, we arrange unsecured loans of £1,000 to £15,000
  • Length of time you can borrow for

    This can be up to 10 years, but it’s usually up to 5 years
  • Will I be charged repayment fees if I pay back early?

    Yes, but you can arrange unsecured loans with no early repayment charges
  • Interest rates

    Usually, these are more expensive than secured loans due to having no assets as security for the lender
  • Risk

    No property or assets are at risk unless dictated by a court order (CCJ)

What kind of a loan do you need?

Loans can be valuable in helping you achieve your financial goals. Whether you’re looking to consolidate existing debts into one payment as part of a debt reduction plan, or are borrowing to facilitate a life-changing decision like home improvements or a wedding.

There are two main types of loans, secured and unsecured (also known as personal). Secured loans involve using an asset, such as your home, as collateral to cover the loan should it not be paid back. A mortgage is a type of secured loan, as is a ‘logbook’ loan which works by you handing over ownership of your car until the money is repaid.

Unsecured loans attribute the debt only to the person in question, so no asset is at risk. However, that doesn’t mean there is no risk attached, you will still be accountable to make the repayments on time, each month. Multiple missed payments and lack of communication can lead to a default account and ultimately a County Court Judgement (CCJ).

Generally, you can borrow more with a secured loan and the interest can be lower too. This is due to the increased security the lender has with your home. Consider how much it is you want to borrow while weighing up your loan options.

Personal loans: advantages and disadvantages


  • Anyone over the age of 18 can access one, as you don’t need an asset to secure it against
  • These types of loans are pretty versatile in their purpose, as you can use the money for almost anything. Always make sure that you are borrowing what you can afford to pay back
  • You can have flexible time periods to repay, this will vary depending on the amount you borrow
  • Certain providers offer payment holidays, which gives you a break from repaying your monthly repayments. You will still be charged interest during this period and it will take longer for you to pay it back, so always think carefully about taking up these offers
  • You can usually pay them back early without any penalties if your budget changes. If you took out an unsecured loan after 1st February 2011 for £8000 or less, it can be paid off earlier without early repayment charges
  • They pose less risk than secured loans, as your assets cannot be reclaimed if the debt isn’t repaid (this may change if a failure to pay results in a CCJ)
  • They are usually very quick for not only a decision but the money being transferred to your account (anywhere from within 15 minutes to the end of the next working day)


  • You aren’t offered the long repayment times some secured loans provide, which can be up to 25 years.
  • You can usually only borrow up to £15,000, which may not be enough money for certain home improvements or car purchases.
  • The interest charges can typically be more expensive than secured loans.
  • You need a strong credit score to access the best interest rates and deals.
  • Your monthly payment figure is fixed, so you don’t have the flexibility to pay smaller amounts one month (compared to credit cards for example). This is the case even if you pay more off one month.

Secured loans: advantages and disadvantages


  • You can often borrow larger amounts of money than with an unsecured loan
  • You can also take longer to pay secured loans back, up to 30 years
  • Interest rates are often a lot cheaper than personal loans because the risk of retrieving the money by the lender is lessened by the asset providing security
  • You don’t always need an exemplary credit score, due to the assets offsetting the risk


  • These are only available to homeowners with enough equity - and your home can be at risk if you don’t keep up with your repayments. This is a big reason why you must be 100% sure you can afford to stick to the payment plan
  • You will usually be charged early repayment charges if you pay the loan back early. This is also applicable if you transfer the loan to another provider
  • You may have variable interest rates which fluctuate, so the cost of borrowing may go up over time
  • As with unsecured loans, your monthly payment figure is fixed. This means lacking the flexibility to pay smaller amounts one month which is the case with credit cards

Do I have other options?

There may be alternative options which could prove to be cheaper or better suited to your personal needs.

  • You could transfer the debt to a credit card that offers a low interest rate on balance transfers - in some cases, this can be interest-free for over two years.
  • Peer-to-peer lending, also known as social lending, directly matches people who want to lend money with people or businesses who want to borrow.
  • Credit unions are organisations that offer money to people based on shared traits, such as occupation or location. You can search for one applicable to you via Find Your Credit Union.

If you need less than £15,000 for something like a car or wedding, you may want to consider applying for a personal loan. However, if you need to borrow a larger sum over £10k and you’re a homeowner, a secured loan may be more suitable.

Check your eligibility for a loan from £1,000 to £500,000

  • Personal and homeowner loans available
  • Getting a quote is FREE and won't affect your credit score
  • Easy online comparison tool
Check my eligibility

We're a credit broker not a lender. Homeowner loans are secured against your home.

Disclaimer: All information and links are correct at the time of publishing.