Guide to a Home Owner Loan

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Loans. The differences between secured and unsecured loans

by Michael Challiner

It's important to be aware of the differences between secured and unsecured loans before you make a decision on taking out a loan. As this article will explain, if you don't own your home or are in the process of paying off a mortgage, you won't have the choice. But a homeowner does have a choice, and it's very important that you make the right decision.

In this article we will give you the full rundown about each type of loan.

A loan 'secured ' on your house

The whole point of a secured loan is that your home provides the security which enables the lender to take you on as a customer. The system of getting a secured loan really does depend on owning or part-owning a property, as the lender goes through the Land Registry to place a legal right on your home if you default on the loan. They take second place to the mortgage which has the priority, so if the home has to be repossessed and sold, they would get their monies once the mortgage had been paid off. If there is any left over after the sale, then you would get that amount.

You must take getting a secured loan very seriously because if you do find that your circumstances change and you can't make repayments, it is possible that the lender will end up taking your home away from you. They are perfectly entitled to do this. So, we definitely recommend thinking hard and ensuring that you will be able to meet the repayments for the term of the agreement. There are also a number of insurance options out there to protect you from the possibility of defaulting on your loan.

Getting an unsecured loan

Unsecured loans are for the people that don't own a home. Because you are not able to secure a loan on property, you will not be able to borrow as much, simply because the lender does not have any security that will ensure that they do get their money back.

If you only want to borrow up to £15,000, you should be able to get an unsecured loan. If you have an excellent credit history, you may be able to borrow as much as £25,000. The least you will be able to borrow is £500. Because the lender does not have any security on the loan, the interest rate will be slightly higher than with a secured loan. The difference could actually be as much as 1% - 3% more than a secured loan deal. If you have a poor credit record, the difference could be even more, and they may decline your application.

If you want to borrow a large amount, up to £75,000 for example, then you will need to be able to get a secured loan. You can also borrow amounts as low as £5,000. The sky really is the limit on secured loans especially if you have a high value house that you own outright. That's because they know that if you do default on the repayments, they would definitely get their money back on the sale of your house. Just like with a mortgage, you can pay a large secured loan back over 25 years. Of course, you can pay it back quicker, if you prefer.

If you have a good credit record, you can get a rate of 5.8% online for an unsecured loan at the moment. But if you have credit problems, then it is feasible that you could face interest rates of up to 20%. As many as 50% of homeowners have less than perfect credit records, and many are finding that they cannot afford to get an unsecured loan. The only way that they can get an affordable loan is to get a secured loan, secured against their home.

In most areas of finance, we recommend that people shop around, but this is one area in which that is definitely not the best policy. Every time you fill out a loan application form, it goes on to your credit history and your credit score decreases. Over time, your credit score goes down and down into eventually you'll will either be rejected by lenders, or only offered high interest rates. You may not even realise why this has happened. If it does happen, it will take a number of years to get back to your old credit status.

To avoid this potential circumstance, we recommend going through an online loan broker. Using your details, they will be able to tell which loan companies to approach, and will not have you fill out an application form until they are sure that that's the best deal for you.

It's easy to find an online loan broker. Just search on the Internet under the term 'secured loan' and you will find a number of reputable companies that will be able to advise you over the phone. There is no obligation to take a deal that they offer you, so why not give it a go?

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