Secured Loans vs Personal Loans

Jun 22, 2022

Knowledge Hub / Guide / Secured Loans vs Personal Loans

Secured loans are a type of personal loan which is available to you if you are looking to borrow money online. 

There are different types of personal loans, however, that might be better suited to your personal financial requirements. 

A secured loan is often an effective way to borrow money quickly. It allows you to borrow a large sum that is secured against a valuable asset of yours. 

However, those who are worried about securing a loan against an asset of theirs may look to take out an unsecured personal loan meaning they will not have to worry about the asset being repossessed. 

This guide takes you through what a secured loan is, what a personal loan is and which type of personal loan might be best for you.

What is a Secured Loan? 

A secured loan is a loan where your lender will take legal charge over an asset of yours (a property, a car etc..) in order to protect the money that they lend you. 

Whether for your business or your personal life, a secured loan can sometimes be a great way to get the money you need quickly.

However, it is important to be aware that if you were to fail to repay your loan payments on time, then this asset could be repossessed by your lender. 

A secured loan can be taken out on your property even if you have a mortgage and these can often be called second charge mortgages.

The interest rate on a secured loan like this would be slightly higher than your mortgage.

This is because if you were to default on a second charge loan then the first charge lender would get the equity of the house owed and the second charge would be left with the rest.

What are the benefits of a Secured Loan? 

There are many benefits to a secured loan that are worth considering before deciding what type of personal loan to apply for. 

Some of the advantages of a secured loan include:

You can use it for any legal purpose 

Secured loans can be used for any purpose that you wish, as long as it is not illegal. This means that you can use your secured loan for any financial issues that you are having. 

Common uses of secured loans include debt consolidation and home improvements.

You can get a secured loan with bad credit

Lenders are more likely to offer you a secured loan even if you have a bad credit score or history. 

This is because the risk for the lender is less and the lender’s money is backed by your asset and they know they will be paid even if they do not receive the money from you. 

You can usually borrow larger amounts  

If you are backing your secured loan against a large asset of yours such as your property or car then you can borrow much larger amounts of money than other personal loans. 

Lenders will lend larger amounts of cash on secured loans than unsecured loans. Lenders see secured loans as less of a risk. 

The more equity and the price of that equity that you have in your asset the more you will be able to borrow. 

You can access lower interest rates 

Secured loans will often come with lower interest rates then other personal loans such as unsecured loans. 

This will reduce the cost of borrowing for you.

You can spread the payments over a longer period 

Secured loan repayments will be spread over a much longer period of time than unsecured loans. 

This can make repayments more affordable especially if you are borrowing a large amount. 

You can use your repayments to build up a credit score 

If you make sure that you are making your secured loan repayments on time every month then this is an effective way of building up your credit score.

What is a Personal Loan?

A personal loan is money that is borrowed from a bank, credit union or online lender. Usually this money is paid back in fixed monthly amounts and can be paid back over a period of months to seven years. 

Most personal loans are unsecured loans especially when you are borrowing money online. However there are also personal loans which are secured loans like the ones spoken about above. 

Loan amounts for a personal loan will vary on whether it is a secured or unsecured loan but you can sometimes borrow up to £50,000. 

An unsecured personal loan will often be for those who are looking to get cash quickly but also those looking to borrow smaller amounts of money.

Personal loans can be a good option for you if you are self-employed or looking to help your business grow as well.

Should I Get A Secured Loan Or A Personal Loan? 

Whether you should get a secured loan or a personal loan truly depends on your circumstances. 

If you have a bad credit score then it may be worth looking at getting a secured loan as you may find it easier to be accepted for a secured loan based on your financial history. 

You may find that your secured loan is a more affordable loan option for you.

However, for those who are worried about backing money against an asset or are looking to borrow less money then a personal unsecured loan may be the right move. 

Consider all the options before you decide what type of loan to apply for and make sure that you are eligible for that loan and you know you will be able to make your repayments on time.


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