Let’s start with explaing the difference between secured and unsecured loans. These two loan types don’t have much in common; to be more exact, they are opposite to each other. So, an unsecured loan doesn’t involve so much risk, whereas a secured loan has to do with the borrower’s property. This is the major difference.
If a long-term loan of a large amount is what you really need, choose a secured loan. The amount of a secured loan can vary from £5.000 to £100.000 (in some cases even to £150.000). There are also some banks where you could be offered a secured loan of £3,000. It is essential to choose the deal with the best interest rate for you. The most competitive deals usually have a charge of 10.0%. In addition, the repayment period of a secured loan is much longer than that of an unsecured loan. The loan terms range from 5 to 25 years. Still, there are some banks where you could be offered a mortgage deal for the term of 35 years. You should know that the maximum repayment term for a secured loan of £25.000 is ten years only. The larger the amount, the longer the repayment term!
The most important information about secured loans is that you are obliged to make repayments once a month. If you don’t, you can face a foreclosure. As the risk of losing your house is not imaginary, you should better think twice before applying for a secured loan. Even if you are ready to take the risks of going into foreclosure, don’t forget that if you fail spoil your credit history this time, you will surely have problems with taking out loans in future. No one will give you a loan on competitive terms and you will have to go through tedious and annoying process.
In case you need a relatively small amount (up to £10.000), choose an unsecured loan. The repayment term is typically shorter and you won’t be forced to bet your shirt. BUT! The amount you will need to repay every month is going to be much larger than the repayments of a secured loan.
Some people might find a refinancing loan to be their best option. Refinancing can be defined as a way of repaying you existing debt by taking out another loan. It’s a workable option of paying off a mortgage loan when you failed to repay it on schedule. But there is one pitfall one should be aware of: you will run the risk of sliding deeper into the debt trap. If this worst scenario comes into play, you will lose your property.
To make it clear what loan type you should stick to, analyze all the pros and cons of every option available to you. Calculate your income and see if the need to make monthly repayments doesn’t hit your budget. In any case, try to minimize your expenses.