Are Unsecured Loans Better than Secured Loans?

Whether you have good credit or bad credit, there are plenty of personal loans available at your disposal. You can borrow as little as £100 for an overdue bill or as much as £50,000 or more for a major expense. Either way, the trick when borrowing money is to thoroughly plan especially the repayment part of the loan. Understanding how loans fall into two main categories, which are secured and unsecured loans, will also help. To help you along, here’s a quick guide and comparison of secured and unsecured loans.

What are secured loans?

Secured loans are the type of loans secured against an asset or property. To avail the loan, you’ll need collateral to get approved. Collateral or security may come in different forms. Among the most common examples as required by your provider and the financial product you’re applying for include a home, a vehicle or items such as stocks, bank accounts and more.

With secured loans, lenders are essentially taking little risks hence the more generous loan offers. Depending on the value of your collateral, you can borrow between £1,000 up to £50,000 for logbook loans and up to £100,000 or more for home equity or mortgage loans. It follows that repayment terms are also longer. But more importantly, secured loans come with cheaper interest rates all in all because of the security involved. On the downside, there’s always the possibility of losing your collateral to your lender in case you are unable to repay the loan.

Secured loans are ideal for borrowers with an asset or property they can use for collateral who need a larger loan amount than what unsecured loans can offer.


What are unsecured loans?

Unsecured loans are exactly the opposite of secured loans. There’s no security involved, which means that the personal loan is not secured on any asset, personal property or collateral. Unsecured loans are also generally easier to avail than secured loans because the requirements are simple and basic. Even people with bad credit can avail unsecured loans. If you really need quick, there’s no more convenient type of loans available than unsecured loans. Popular examples in the UK include payday loans, guarantor loans, doorstep loans and more.

On the downside, unsecured loan providers aren’t able to offer borrowers larger loan amounts. Because the risks are higher especially on the lender’s part, loan offers are limited between £100 and £25,000. To offset the risks, lenders usually spike the loan’s cost with higher interest rates, hidden fees and other associated loan charges. If you have bad credit, prepare for a steeper interest rates than borrowers with a good credit score.

While there’s no repossession to worry about when you’re opting for an unsecured loan, these loans are only ideal if you need quick and a small amount of cash. It’s great for financial emergencies but not for major investments, business expansion and related needs.

Which is better for you?

Between unsecured and secured loans, one can’t really say that one is better than the other. Taking into consideration that each borrower have diverse and different financial needs, you’ll only know which type of loan is better based on what you need and what your financial situation demands. If you’re a homeowner with good credit, for example, you can avail a secured loan using your home as collateral. This will allow you to borrow more money at a more affordable rate. Conversely, if you don’t have a property to use for collateral and you have a poor credit score then it’s wiser and more feasible to stick with unsecured loans.