Commodore Finance Ltd © All rights reserved. Privacy Policy | Terms of Use

Introduction

If it has become apparent that you need to take out a loan then you need to consider whether you want to implement a secured loan or an unsecured loan.

Within the world of banking it often the case that lenders will be more willing to provide you with a loan if it is asset backed especially if you wish to borrow a larger amount of money. You must be mindful however that your home may be repossessed if you do not keep up the repayments on your loan.

Link:-

Secured Loans

Unsecured Loans

Lets look at the main difference between secured and unsecured loans?

Secured Loans

If you want to take out a loan and have this secured against your property and you already have a mortgage in place this type of loan is known as a second charge. However, if your property is currently unencumbered (owned outright with no mortgage in place) this type of loan would be known as a first charge.

The amount that a lender would be willing to lend to you will very much depend upon your current credit worthiness, the amount of free equity you have in your property and your current level of proven affordability. It is these factors that will also dictate the length of time that the loan can be taken out over and indeed the interest rate that you will be required to pay.

It is fair to say loans of this kind were previously thought to be an expensive option and did not appear to be a high priority in the clients mind. This was partly due to people arranging these types of loans through brokers who charged a high rate of commission.

In the current economic climate it is fair to say that unsecured loans are much harder to come by, lenders are becoming much more selective in relation to who they will lend to and indeed the circumstances in which they will lend.

Clients who have a less than perfect credit score often find they are offered a more competitive rate if they are prepared to secure the loan against the property. You will understand therefore that secured loans are now seen as a more favourable option especially if you are looking to take out a larger loan and you want to borrow the money over a longer period.

If on the other hand you only wish to borrow a relatively small amount of money and you wish to repay this over either a 24 month, 36 month, 48 month or 60 month period you may be better considering an unsecured loan.

Unsecured Loans

Unsecured loans or personal loans are normally made available for any purpose. Typically the smaller loans are offer over a shorter repayment period whilst in contrast larger loans, for example, those in excess of £10,000 (dependant on the lender) may be allowed to be taken out over a longer repayment period. Normally the maximum that you would be able to borrow under an unsecured personal loan would be about £25,000. Unsecured loans as the name suggests are not secured against any property, therefore there is little risk of you suffering the loss of your home if you fall behind on your payments. However, it must be highlighted that should you fail to maintain your repayments on the due date, this will have an adverse effect on your overall credit rating and therefore make it a lot more difficult to borrow in the future. Some lenders many also charge administration fees for late payments.

Before considering the amount you wish to borrow careful thought must be made of your current income and outgoings to ensure that you will always be able to afford your monthly repayments.

Please remember the lesser the repayment period the lower the overall cost of the borrowing will be. Some providers will even allow overpayments to be made on your loan, which will allow the debt to be redeemed much quicker.

Further considerations to be made before taking out a loan

Before making an application for any loan one consideration should be that I you are a homeowner and dependant on the amount you wish to borrow together with the purpose of the loan it may be more prudent to look at a re-mortgage option and release some of the equity held on your house.

Mortgage interest rates are often lower than the interest rate given on personal and secured loans, however, if this action was to result in a change of mortgage provider you may be involved in additional costs being incurred and this is a fact that would need to be taken into account in addition if you have a long term left on your mortgage and you take this additional borrowing over the remaining mortgage term, again the overall costs could be higher than implementing a shorter term or unsecured loan.

Whilst we have attempted to address some of the consideration to be taken into account when looking for a loan there are other factors that may have equal importance. A quick call to one of our trained specialists will enable them to assess your current situation and advise you on the best course of action at this time. Should you require further help please don’t hesitate to complete the enquiry form below?

Quick Comparison of Secured and Unsecured Loans

Top

This calculator is for guidance purposes only, figures may differ according to your personal circumstance.

The Financial Services Authority does not regulate Personal Loans

Commodore Finance Limited is an Appointed Representative of Personal Touch Financial Services Limited which is authorised and regulated by the Financial Services Authority

Top

Top