Secured Loans Versus Personal Loans

Most high street personal loans are ‘unsecured’. Rather annoyingly, that sounds like a bad thing, but it isn’t. The alternative, and the kind you’ll see mountains of TV ads for, are ‘secured loans’, and for a number of reasons I’d steer well clear of those.

Your home could be taken away.
A secured loan literally means the debt is secured on your house, meaning if you can’t repay, the lender can repossess your home. With unsecured loans, it’s much much less likely this will happen.

Personal loan rates are fixed, secured are usually variable.
Almost every unsecured personal loan is at a fixed rate; you know exactly what you’ll pay from the start, and it won’t change if the UK’s interest rates do, or on a lender’s whim.
Yet secured loans have variable rates, meaning the lender can up your payments when it likes. With the Credit Crunch

The Credit Crunch, This is the name given to the current phenomena that banks and other big financial institutions are struggling to find money to borrow. As they can’t find money to borrow they’ve less to lend out, which means the cost of debt is increasing, and its availability is decreasing. In other words it’s getting more difficult and more expensive to borrow. Closebiting, many secured loans have seen rates doubling, hitting people’s pockets hard.

Secured loan repayments are stretched over many years.
Secured lenders often promise “one easy low monthly repayment”, while it may sound good, it’s done to stretch the debt over many years, so you pay more, and more, and more interest, costing you a fortune. As this is so important, in case I haven’t made the point strongly enough yet, here it is writ large…

“Secured loans give the lender security, not you. It’s far, far, better to take a normal unsecured personal loanthan one secured on your house.”

Secured loans are rarely a good move, and should be considered lending of last resort. They're only applicable in very limited circumstances (see the Secured Loan article). Those with reasonable credit scores should consider a personal loan, cheap credit card deals or even extending their mortgage instead.