Unsecured vs secured loans
Advantages and disadvantages
Unsecured personal loans are available for a range of
different amounts and repayment terms. Larger loans such as those for over
£10,000 can usually be taken over longer terms, for example between seven and 10 years,
and the maximum you can borrow this way is about £25,000.
Sorted finances make happy families
Some lenders offer flexible loans which permit over-payments and lump-sum
payments, both of which allow you to clear the debt over a shorter
time period than first agreed.
With secured loans, the amount available usually
ranges from £3,000 to £50,000, although some lenders will consider
lending up to £100,000. Similarly to unsecured loans, the amount
borrowed is repaid monthly over a term agreed at the outset, which will
usually range between three and 25 years.
However, it is vital to keep up the repayments as all lending secured on your property
could result in the loss of your home if you fall behind.
Some lenders offer flexible loans which permit over-payments and lump-sum payments
There is no risk of this with an unsecured product, but it is worth remembering that any failure to pay on time will adversely affect your credit rating, making it harder to borrow in future. You are also likely to be hit with late payment charges.
Before deciding how much to borrow, you should
therefore check your monthly incomings and outgoings to ensure that you
will be able to make the repayments.
If you are borrowing in order to consolidate
existing debts, it is also crucial to pay off all your creditors once you
receive your loan and to close the accounts. Otherwise you may be
tempted to build up more debt again.
Which is most suitable for me?
If you are self-employed, have recently changed jobs or have a less-than-spotless credit history, you may find that you have no choice but to opt for a secured loan.
If you are self-employed, have recently changed jobs or have a less-than-spotless credit history, you may find that you have no choice but to opt for a secured loan – as long as you are a homeowner of course.
Secured loans are also useful for larger amounts or where the applicant requires a longer repayment period.
Otherwise, an unsecured arrangement should suffice.
Continue to page 3 to see advantages and disadvantages >>
