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What’s the difference between a secured and unsecured loan?

A secured loan is just that: ‘secured’ against an asset, such as your home (sometimes referred to as homeowner loans). An unsecured loan (also known as a personal loan) isn’t secured to any assets. That doesn’t mean there aren’t consequences if you don’t make repayments, which we’ll explore later on.

5 min read
Secured loan vs. unsecured - which is best

See how they compare:

  • Secured Loan
  • Unsecured Loan

Secured Loan

  • Amount of money you can borrow

    At Ocean Finance, we arrange secured loans of £10,000 to £100,000
  • Length of time you can borrow for

    Up to 25 years
  • Will I be charged repayment fees if I pay back early?

    Often 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 £10,000
  • 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?

    Often 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)

If you need to borrow money, applying for a loan could potentially be the right answer for you. Two of the main types are secured and unsecured loans, and here we break down the differences and the pros and cons of each.

What is a secured loan?

A secured loan is when you borrow a set amount of money and use an asset (e.g your home or a car) to secure it with. This alleviates some of the risk for the lender, because in the event of you not paying back the money you owe, they can take action against the asset in question.

This type of loan uses the equity in your home, which is why they are also called homeowner loans or second-charge mortgages.

Advantages

  • You can often borrow larger amounts of money than with an unsecured loan
  • You can often take longer to pay these back, up to 25 years
  • Interest rates are often cheaper than personal loans
  • You don’t always need an exemplary credit score, as your assets offset the risk for the lender

Disadvantages

  • Your home is at risk if you don’t keep up with your repayments
  • You will usually be charged repayment fees 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 may fluctuate, so the cost of borrowing can go up over time.

What is an unsecured loan?

An unsecured loan is a loan that isn’t secured to any assets. With an unsecured loan arranged by Ocean Finance, you can borrow £1,000 up to £10,000.

As lenders don’t have the added reassurance of your home, you’ll usually need a good credit score to get accepted for the best rates. However, there are lenders specialising in loans for bad credit. Unsecured loans are also sometimes called personal loans, due to the fact the loan is tied to the person rather than an asset. Personal loans can be taken for almost any purpose and some common uses are to pay for home improvements school fees, to consolidate debt or for a wedding.

Advantages

  • They’re available to a wide variety of people as you don’t need to own a home
  • Certain loans will offer payment holidays, either at the start of the agreement or for one or two months a year
  • By law, any unsecured loan under £8,000 taken out after 1st February 2011 can be paid off early without early repayment charges
  • They are less risky than secured loans, as no assets can be reclaimed if a debt isn’t repaid (this will change if a personal loan leads to a CCJ)
  • You can often get an instant decision, and in some cases have the money in your bank account within an hour

Disadvantages

  • You can't borrow for as long or as much as you can with secured loans
  • You can only borrow up to £10,000 with most lenders capping the amount lower (we offer unsecured loans up to £10,000)
  • The interest charges can prove to be quite expensive
  • The best deals are only available for those with a really strong credit score

Do I have other options?

There can be alternative options which may prove to be cheaper or more suited to your personal needs. Some of them are as follows:

  • You could transfer the debt to a credit card that offers a low-interest rate for balance transfers (in some cases this can be interest-free for over two years).
  • Peer-to-peer lending, also known as social lending, matches people who want to lend money with people or businesses who want to borrow. It can be cheaper as it cuts out the middleman (usually banks).
  • 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 £10,000 for something like a car or a wedding, then it could be a good idea to apply for a personal loan. However, if you need to borrow a large sum over £10,000 and you’re a homeowner, you can consider a secured loan.