Advertorial: Feel more secure with an unsecured loan

May 23, 2010

There are as many good as naive reasons for taking out a loan. For example, it might be a good idea to consolidate existing debts with several creditors into one cheaper loan or to invest in a new kitchen and bathroom before selling your house. If you are sure it is wise for you to take out a loan, you have to choose between secured and unsecured loans. In case you’re thinking of taking out a small loan which you can pay back on a short term, you could simply use your credit card.

However, if you want to borrow more than a few thousand pounds, the question whether you need to secure your loan against your property becomes more urgent.

You can either secure a loan against a property you own with no existing mortgage or against a property that is already mortgaged. The former is called first charges, the latter second charges. Until recently, these types of loans were seen as an expensive last resort because they were only available through brokers who charged huge commissions. Homeowners used to prefer to remortgage and release some of the equity from their house, because mortgage rates are generally lower than loan rates.

Nowadays, however, changing your mortgage provider or increasing your mortgage is very expensive. Because the economy is still recovering from the credit crunch, cheap remortgage deals are very hard to come by. Some people have to pay up to £2,000 to make the switch! That is why secured loans are becoming a feasible option if you want to secure a large amount of money over a long period of time.

Falling behind on repayments of a secured loan could result in the loss of your home. You don’t run this risk with an unsecured product. As the name suggests, with unsecured loans there is no security offered as a guarantee to the lender, but you will feel much more secure knowing that you can’t lose your house.

However, if you fail to pay back your unsecured loan in time, you will be fined and it will have an adverse effect on your credit rating, which will make it harder to borrow money in the future. That’s why you should never borrow money without checking your monthly incomings and outgoings to ensure that you will be able to make the repayments in time.

You can get unsecured personal loans for different amounts and repayment terms. The maximum is usually £25,000. With secured loans, the amount normally ranges from £3,000 to £50,000. In both cases, you will have to make monthly repayments over a term agreed at the outset, which will usually range between three and 25 years. Some lenders offer flexible loans which allow lump-sum or over-payments so that you can clear the debt over a shorter time period than originally agreed.

Because most lenders prefer to give loans if they are asset backed, cheap unsecured loans are more difficult to find. The downside of taking out secured loans is that your home could be at risk if you miss a payment on a secured loan. If you want to borrow a smaller amount over a shorter period, however, your chances of finding a good deal increase.

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