Unsecured loan v’s secured (second charge)

An unsecured loan is not protected by any collateral or guarantee, so should you default on payments the lender can’t automatically take your property or assets. They can be offered to people who don’t own property and that makes them available to a much wider range of borrowers. They are flexible, and you can choose the amount and over what time period you repay your loan.

You can apply for an unsecured loan generally if you are aged over 18, irrespective of whether you are a homeowner, but you may be asked for a Guarantor who has a good credit history. The interest you pay back depends on the amount you borrow; the interest rates will normally be much higher than the secured loan option.

A secured loan generally can be advanced for car loans and mortgages, It’s often referred to as a homeowner loan or second charge because the debt is linked to the borrower’s property.

The amount you can borrow and repayment terms offered on a secured loan is linked to your personal circumstances and the amount of “free equity” you have in your property. Free equity is the difference between the amount you owe on your mortgage and the value of your property. As an example, if your property is valued at £200,000 and you have a mortgage of £100,000 your free equity is £100.000.

You can generally borrow more with a secured loan, it is likely to be at a lesser interest rate than an unsecured loan, but should you default on your payments you risk losing your property.

Important

If you want to secure a loan for any reason it is highly recommended to seek broker advice as the choices are vast and can be very confusing. A broker will listen to your needs and assess the best option to suit your circumstances now and in the future.

Assistance?

If you would like to speak to a qualified adviser, please do make contact and they will be happy to help.