Many different institutions offer secured and unsecured loans, from banks, building societies, supermarket chains and independent providers like Nemo Personal Finance.Remember a Nemo loan is secured against your home so you must ensure you can keep up with the repayments.
The difference between a secured and unsecured loan is simple to understand. The former, unlike the latter, offers the lender some form of security against the debt – usually your property. If the loan is not repaid, the lender has the power to claim the property against the outstanding sum.
This difference means that in the eyes of most, unsecured loans usually pose the more attractive option because the risk they carry is far less.
Secured loansmay have many benefits of their own, from better rates, longer repayment terms and the ability to borrow larger sums.
A Tale of Two Loans
Secured and un-secured loans suit different people to varying degrees.
Those who don’t possess a property of their own will usually find that they’re not eligible to apply for a secured loan. This means they would only be able to take out an unsecured loan. This is not necessarily a bad thing. Unsecured loans can be agood option for those looking to borrow a small amount over a short term without the risk of losing your home. In terms of risk alone, they can be the better option; additionally, due to the shorter terms on offer, the overall amount repayable tends to be lower.
Secured loans, however, are not without their attractions. When you borrow capital under a secured loan agreement, the risk you pose to the lender is far lower. As a general rule, unsecured borrowers are restricted to taking out loans of around £25,000. Although a relatively large amount, for some purposes, this simply isn’t enough. Secured lenders can offer larger loans. Secured loans repayment terms can extend up to 25 years in some cases.
Asking the Right Questions
When it comes to deciding which of these two options are best for to you, the decision is one that only you can make. However, it helps to bear these questions and their answers in mind:
- Do you own a property?
If the answer to this is ‘no’, then you’re immediately restricted to an unsecured loan.
- How is your credit history?
The lender will take this into consideration when approving your application. If you have a poor credit history, don’t worry, still enquire with your chosen lender as some will still consider your application.
- How much do you want to borrow and how long for?
If the amount is greater than £25,000 and the term is longer than seven years, then a secured loan would probably be the better option.
Which option would work best for you?
