What is a secured loan?
A secured loan is a loan that you secure against a valuable asset that you own, usually your home. If you can’t repay the loan, the lender can sell the asset to recover its money.
You can typically borrow larger sums of money with a secured loan because there’s less risk involved for the lender.
Types of secured loans include:
Homeowner loans, also known as second mortgages – where you borrow a lump sum against the equity you hold in your home
Mortgages – you borrow money to pay for a property, using the same property as security
Bridging loans – often used to buy a new house while you wait for an existing property to sell
Debt consolidation loans – to pay off multiple existing debts (can be secured or unsecured)
Guarantor loans – a close friend or family member guarantees to repay the debt if you can’t.
What is an unsecured loan?
An unsecured loan, also known as a personal loan, allows you to borrow money without having to provide any kind of asset as security.
Types of unsecured loans include:
Debt consolidation loans – to pay off multiple existing debts (can be secured or unsecured).
There are certain things you won’t usually be able to fund using a loan – for example, gambling, investing and house deposits.
What’s the difference between secured and unsecured loans?
Both secured and unsecured loans allow you to borrow money that you pay back, plus interest, over an agreed period of time.
The main difference between the two is that secured loans require you to borrow against an asset, such as your home, meaning you could lose it if you don’t keep up with repayments. But there are other differences too:
Secured loans
It can take around three to four weeks for a secured loan application to be processed. That’s because there’s more paperwork involved due to the loan being secured against an asset.
Lenders could be more likely to approve your loan application because you’re putting up an asset as security. This can make secured loans an option if you have a less-than-perfect credit history.
You can typically borrow larger amounts than with unsecured loans.
You can often pay back the loan over a longer period – sometimes up to 35 or 40 years – helping to lower your monthly repayments.
Longer loan terms tend to mean lower interest rates, but a long-term loan will usually cost you more overall as you’re paying interest for a lot longer.
You risk losing the asset you secured the loan against if you fail to make your monthly repayments.
Unsecured loans
Applying is usually quicker and easier than with a secured loan. That means the money could be in your bank account within days (or even hours) of being approved.
You don’t need to put up an asset as security for the loan, so approval depends on your credit history. Lenders will want to be sure that you can manage your money and pay back what you borrow.
Unsecured loans are usually available for smaller amounts than secured loans, and can start from as low as £1,000.
Shorter loan terms are available. Some short-term loans can be repaid over just 12 months.
Because the loan isn’t secured against an asset, interest rates tend to be higher.
While your assets aren’t at risk, late or missed payments can lead to extra charges and harm your credit score.
How much can I borrow with an unsecured loan?
You can typically borrow from £1,000 to £25,000 with an unsecured loan, although Compare the Market can let you compare unsecured loans of up to £50,000 (depending on your eligibility and credit history).
How much can I borrow with a secured loan?
If you use Compare the Market, you can search for secured loans up to £150,000.
Use our loan calculator
Our loan calculator helps you work out how much you can afford to borrow and what your monthly loan repayments could be.
Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.
What’s the best type of loan for me – secured or unsecured?
It depends on your situation, as secured and unsecured loans suit different needs. Think about:
Your credit history
What you want to borrow the money for
Over what period you’d like to repay the loan
Your outgoings, including any existing debts and credit card payments
Your financial situation. Having a clear understanding of what you can comfortably afford to repay is essential.
Always think carefully about whether borrowing is right for you. There could be serious financial consequences if you don’t pay back a loan on time.
Compare the Market’s Editorial Team is made up of industry experts with decades of experience in personal finance, insurance and utilities. Each of our authors has an area of expertise, where they can share their extensive experience to help you get a better deal, by finding the right product and saving money.
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