An unsecured loan is a loan made to a party without any particular asset offered as collateral. A secured loan on the other hand is secured on your property, which has very different implications.

Unsecured Loans are usually for small amounts, but can be up to £25,000.The loans are generally repayable over a term of between 1 to 5 years - normally on fixed interest rates.

If you have an unsecured loan, this means that if you become unable to repay under the terms of the loan, whilst you will still remain liable under the terms of the agreement, the lender does not have the immediate right to take possession of your assets and sell it to repay the outstanding loan and accrued charges / interest. They can however apply for a Bailiff's order to come and take good to the value of the outstanding loan.

If you take a Secured Loan, this is in effect a 2nd mortgage or 2nd charge.

The sum lent can usually be much greater, dependent on the financial circumstances of the borrower and the amount of equity available in the house it is secured against. Secured loans are generally available from as little as £3,000 and interest rates are generally much more competitive than unsecured loans. That said, you are likely to incur other costs such as a valuation and arrangement fee, legal fees, etc.

Secured loans may be for a period of up to 30 years or more and because there is some security offered by the borrower, the risk to the lender is much less. Interest rates are therefore, usually, much less, although interest rates might be variable and dependent on external factors (such as LIBOR or the Bank of England Base Rate).

The mortgage lender generally has the right to take possession of the property if the loan goes unpaid or if the terms of the agreement are not met they have the right to sell it. This is usually referred to as being in ‘default’ or ‘forfeiture’. This added ‘security’ reduces the risk to the lender and it is therefore usual for a secured loan to be cheaper with interest payments being lower to reflect the lesser risk.

If you have a weak credit history you are more likely to obtain a secured loan than an unsecured loan.

If there is a clear case of failure to adhere to the terms and conditions of the loan (e.g. the borrower fails to make the payments due under the agreement) then possession is a likely conclusion, although the court may be prepared to give the borrower some leeway where it can be illustrated that there is a plan in place to repay outstanding sums due and maintain a payment schedule into the future.

Here at Mortgage Required, we specialise in secured loans so please get in touch on 01628 507477 if you need more information.

Related articles:

Download our Free First Time Buyers Guide

Recent posts

Selling up? It’s important to make your house as appealing as possible to potential buyers. Good decorating can help with first impressions, and increase the perceived value of your property.

With the cost of living affecting so many of us, we have made a list of budget-friendly activities and ideas for you.

Moving soon? It's never too early to get organised! Be prepared and avoid unwanted stress by checking out our list of tips to get you ready for moving day.

Inflation simply put, is the increase in the price of something over time. The Office for National Statistics (ONS) tracks the prices of hundreds of everyday items and these items are updated to reflect shopping trends.

We are often asked if it's good advice to consolidate “unsecured” debt (credit cards and loans etc) into your mortgage, the answer is, sometimes

When you’re looking to buy a home, and you own a car, you ideally want to know the rules on parking in the area. Parking rules can be confusing, even for the most experienced of drivers! This is why we have written this blog to help you.

There are several potential sources you can consider when it comes to getting together a deposit to buy a property. Providing proof of the source of your deposit is a key requirement in the application process and will need to be given to both the lender and the solicitor.