What is the difference between a secured and unsecured loan?

What is the difference between a secured and unsecured loan?

Secured loans

As the name would suggest, a secured loan is one that’s secured against something you own – for example, if you can’t afford to make your mortgage payments or keep to the arranged repayment schedule then you could risk a tarnished credit report or further action.

There are many reasons to select a secured loan over other options such as credit cards. We have gone into these in a little more depth below to give you an overview on their features and benefits, in what situations they could be beneficial and what considerations you should make before progressing with a decision.

Another example of a secured loan could be an equity loan which is simply a second mortgage In this example you would borrow a lump sum from your property and pay the loan back on a monthly repayment schedule over a period of 5 to 15 years.

What are the benefits of a secured loan?

Generally speaking, secured loans will have the option of longer repayment periods than unsecured ones, meaning they might be more affordable for you in terms of monthly payments. They also tend to let you gain access to much lower interest rates than unsecured ones.

Because the loan is guaranteed against something, you can generally get secured loans for larger total loan balance than unsecured loans.

Secured loans are also good if you’ve got a bad credit history – lenders probably won’t be willing to lend to you if you’ve been in a debt solution or have a poor history of paying back unsecured debt, but secured credit may provide the confidence they need.

The loan could be used for a any legal purpose which could also include combining unsecured debt and credit cards within a debt consolidation loan.

Unsecured loans

Unsecured loans are simply ones in which you borrow money and agree to a fixed repayment schedule, but don’t secure the loan against any kind of property. A standard bank loan, for example, would be classed as an unsecured loan.

A payday loan would also fall into this category as you aren’t securing it against anything, but are promising to pay back a large amount of interest relative to what you’ve borrowed from the payday lender. Payday loans may also offer revolving credit accounts which encourages repeated borrowing from the same provider without having to reassess lending criteria or fill in a new full application.

Unsecured credit is likely to be lent on a lower total borrowing limit, a shorter repayment schedule and whilst unsecured loans aren’t directly secured against anything you own, if a borrower defaults it can result in unsecured debt, the consequences of which could mean that your possessions are seized by bailiffs or become secured debts unless you come to an agreement with your lender.

What are the benefits of an Unsecured loan?

Loan providers can lend to more people because you can get one without owning any property, like a house, a car or a recreational vehicle.

If you’ve got an excellent credit score, then the best deals will be available to you at a higher credit limit. The downside to this, of course, is that if you’ve got a poor credit score or credit rating then you’ll probably find it hard to get a good (or fair) deal on an unsecured loan.

Some unsecured loans might give you the possibility of a payment holiday (where you don’t make any repayments) for a few months before you start paying anything back, but these are subject to your potential lenders policies and may not come as standard.

We work closely with over 100 lenders and can find the most suitable solution from over 1,000 products. Your potential lenders can look at a wide variety of personal circumstances, so if you’re looking for secured finance, a mortgage loan or a personal loan, get in touch using our simple enquiry form or give us a call on 0800 197 0504.

Find your best secured loan Deal

Expert secured loan advice, access to 1000+ products with over 100+ lenders and options for bad credit ratings – Enquire with Clever Mortgages today.

Releasing equity from your home

What is equity release?
Equity release is a way to obtain money quickly by releasing it from the value of your property. You will lose ownership on a proportion of your property but will still be able to live in it. Read on to find out how to release equity in your home and see if it is the right option for you.

What is equity release?

Equity release is a way to obtain money quickly by releasing it from the value of your property. You will lose ownership on a proportion of your property but will still be able to live in it. Read on to find out how to release equity in your home and see if it is the right option for you.

Why should you release equity?

Equity release may be a suitable option for you if you are looking for immediate cash without having to leave your house. It may also be an option to consider if you don’t have many savings and do not intend to leave a large sum of money behind in your will.

We’d advise you speak to a specialist adviser before opting for equity release and make sure you fully understand the details of opting for this mortgage option. The interest rates on an equity release arrangement may be higher than a standard mortgage arrangement, so you should consider all options before agreeing to one.

How does equity release work?

There are a couple of equity release schemes available and you should consider all options carefully before committing to one. One of the following home equity release options may be suitable for you:

A Lifetime Mortgage is aimed at homeowners over 55 years old who are looking to borrow money and remain living in their property. If you choose this option, you will only need to pay your money back when you die or go into full-time care.

A Home Reversion Plan is suitable for people over 65 years old who are looking for a way to raise money. If you opt for this, you will sell your property in return for tax-free cash – between 20% and 60% of its market value – but can continue to live there. You then continue to live in your home as a tenant without paying rent, providing you keep the property well maintained and take out building insurance.

Equity release considerations

There are a few things to consider before opting for an equity release:

  • Your property will not immediately be handed over to your beneficiaries when you die. However, you can protect some of the property’s cash value to use as an inheritance.
  • If your circumstances change after agreeing to an equity release, you may not be able to rely on your property if you need money later on in your retirement for medical emergencies or other events.
  • You may find the benefits you are entitled to change after releasing equity from your home, as this will be viewed as a change in income.

Get advice today

If you are looking to release equity in your property and raise some much-needed cash, call one of our expert advisers today on 0800 197 0504 or visit https://www.clever-mortgages.co.uk/apply-for-a-mortgage/

The main benefits of a debt consolidation loan

If you’re currently dealing with multiple loans from different loan providers then consolidating this debt can be a good option. A debt consolidation loan allows you to combine your debts to provide you with one monthly repayment.

The main benefits of a debt consolidation loan

If you’re currently dealing with multiple loans from different loan providers then consolidating this debt can be a good option. A debt consolidation loan allows you to combine all your existing debts to provide you with one monthly repayment. This loan is used to pay off your individual loans, leaving you with one large loan instead. Consolidation loans are usually ideal for people who have multiple repayments to make on different credit cards, loans and overdrafts.

Here are some of the main reasons why taking out a debt consolidation loan can be a good idea and some of the things you should be wary of:

One monthly payment

It’s likely that your current payments are required on different days each month. This can be difficult to manage and often quite stressful. By consolidating your debt you can streamline everything into one single source and make just one payment each month. Having one payment can make managing your loans much easier. One fixed monthly payment can also help you to more easily budget for other things.

Lower interest rate

Using a debt consolidation loan can also help you to save money on interest. This is especially the case if you have several credit cards with high interest rates. If the rate of borrowing on a consolidation loan is lower than your original debt then you could reduce the amount of interest you pay on a monthly basis.

Improve your credit score

If you’ve fallen behind on any of your existing loan repayments then it’s likely your credit score has suffered. Taking out a consolidation loan can help to improve your credit score. This is because it gives you an opportunity to demonstrate that you’re a responsible borrower.

Things you should be aware of:

Even though a consolidation loan may save you money on a monthly basis, depending on the rate and term, you could be increasing the total amount you pay back and the duration of the repayments.

Another thing you should avoid doing is borrowing more than you need to. A debt consolidation loan should be a tool to consolidate your debt, rather than create more.