Which Loan Is The Best: Unsecured Or Secured?

By on January 8, 2013

When it comes to borrowing money in the UK, there are essentially two different ways to go about it. The methods will be either by an unsecured or a secured loan. Both of them have their own advantages and potential pitfalls.

The Unsecured Loan: Less Risky

Quite possibly the best way of describing an unsecured loan is to say that this is when you don’t have to put up any collateral to obtain the loan. Many individuals prefer this type of loan as it is seen to be less risky than that of a secured loan.

Anyone can borrow money this way, providing of course that they meet the loan company’s criteria. There is no requirement to put assets like your home as collateral. As such this type of loan is great for tenants and home owners alike.

There are a number of different loans than can fall into the unsecured loan category, these can include:

  • Personal loan
  • Credit Card
  • Overdraft

Short Term Lending
This type of borrowing arrangement is often referred to as short term lending. Normally the loan itself would run anywhere between 1 and 5 years.

The loan types shown above have been around for quite some time. There has also been a fairly recent addition to this group of loans, coming in the form of UK payday loans.

As the name would suggest, UK payday loans are set up to provide a source of money that is borrowed against the individual’s next salary payment. Normally the amounts that are lent are less than some of the other unsecured loan methods.

The common factor in all of these unsecured loans is that if for some reason a person goes into default over the payments, they have risked none of their assets. Of course, it should always be remembered that a person’s credit rating will be at risk in the event of this situation arising. Under these circumstances it is important to speak to the loan company as soon as possible. Most loan organisations understand that financial circumstances can change and will try their best to help out where they can.

Fast Cash
Another benefit to trying to organise an unsecured loan can be the set up times. Very often this type of loan arrangement can be up and running much quicker than the secured type of loan. Because the loan company won’t need to take into account the value of any assets, it is not uncommon for this type of loan to be available in just a couple of days. Unsecured loans can be a great way to get hold of money quickly.

For Any Reason
Most of the time a loan company will not need to know what you will spend your unsecured loan on and very often it is not even asked. This greater flexibility is another reason as to why so many people opt for this type of loan arrangement.

The Secured Loan: Lower Interest Rates
When it comes to the amount of interest that will be charged, the winner will nearly always be the secured loan. This is because there is a guarantee put in place to protect the loan company against potential default. As a result of this they will be happier to lend their money at a lower interest rate.

The most common type of secured loan is that of a mortgage. This is where the loan is secured against the value of a house or other property asset. The other main types of secured loans are:

  • Hire purchase
  • Car loan

In all of these cases, the loan company will take an interest in the value of the asset that you have. Very often this information will go onto a central register to show others who might enquire that there is already an interest in place. This is to prevent an individual from trying to make multiple borrowing arrangements against the same assets.

Clear Understanding
For the reasons shown above, it will normally take a little while longer for a secured loan to become approved. As the finance company or bank will want to gain a clear understanding of the value of the assets offered as loan collateral.

Because of these lower interest rates, secured loans tend to be better when it comes to borrowing larger sums of money over longer periods of time.

William Bancs is an enthusiastic copywriter and amateur novelist. He has a strong interest in anything financial and so to receive expert advice on UK payday loans, make sure that you follow him on Twitter and Facebook for any information on taking out and repaying a loan.

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