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Secured vs unsecured loans
Looking to borrow money for a large purchase, like car or holiday?
You might have come across two common types of loan – secured and unsecured. But what’s the difference?
In this guide we’ll help you to understand:
Secured loans and how they work
The key differences
As you can see, secured and unsecured loans are just slightly different ways of borrowing money. Which one is right for you depends on your personal circumstances and the type of loan you want.
What's a secured loan and how do they work?
A secured loan is where your borrowing is tied to an asset, which might be claimed by your lender if you don’t repay your loan.
For example, your borrowing could be secured against your house or car. One of the most common types of secured loan is a mortgage.
1. Application stage
When you make your application for a secured loan, a specific asset will be defined as collateral. This could be your home, business property, car, or another asset.
2. Closing the deal
If your loan application is successful after all credit and security checks, you’ll receive the money. You’ll need to make all repayments, including interest, in monthly instalments.
3. The rest of the loan term
So long as you make your monthly repayments, you won’t risk losing your house, or whatever asset you secured the loan against. If you can’t repay the loan, the lender could claim the asset as a way of recouping the money you owe. Your credit score will also be affected.
Understanding unsecured loans
Which loan is right for me?
A loan is a significant commitment, so it needs to be right for you. Whether you choose a secured or unsecured loan, you need to be able to cover the monthly repayments, including interest or charges.
Acceptance could be influenced by factors like:
- existing debts, or unused credit you already have access to
- how much you can realistically afford to repay
- the reliability of your income
- what you need the loan for
- past loan applications.
Other ways to borrow money
If a loan doesn't sound like the right option for you, there are other ways to borrow money. This includes overdrafts, credit cards and more.
Personal loans from Halifax
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