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All loans are either secured or unsecured. This article explains the difference and the factors which determine which to select.

Loans. How to select a secured or unsecured loan.

Author: Michael Challiner

When you're looking for a loan, one of the first issues

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you'll need to decide is whether it should be secured or unsecured. The decision is seldom straightforward so here are a few pointers.

Before we start, it's important for you to understand the difference between the two sorts of loan.

With secured loans, you agree to allow the lender to register a legal charge on your property at the Land Registry. As most homeowners already have a mortgage that's secured by a first charge on your home, the loan company has to agree to take a charge that ranks behind the first charge. Then, if you sold your house, your solicitor would firstly repay your outstanding mortgage and then the remainder is used to repay the second charge (and any other registered charges). < Mortgage articles > Only when the solicitor has repaid all the registered charges, do you receive the rest of the sale proceeds.

The most important point you have to understand about any secured borrowing, is that if you default on the repayments, then the lender will automatically have < Articles on car insurance >the right to apply to the Courts to repossess your home and sell it to recover the money they are owed. Therefore, you need to carefully consider the matter before you agree to such a charge. If you are in any doubt, consult your solicitor or financial adviser.

Unsecured loans are different. You don't provide any security to the lender. As such, the lender views the loan as a more risky venture as the lender has no automatic route to get back what it is owed.

Therefore you'll appreciate, that if you're not a homeowner you don't have to decide between a secured or unsecured loan. As you have no property to secure the loan, you can only apply for an unsecured bad credit loan.

Unsecured loans are normally available from £500 up to £15,000 (sometimes £25,000), and the repayment period can stretch from 3 to 12 years. As these loans are more risky for the loan company, then on a like for like basis, ( Cheap Home Insurance article ) they charge a higher rate of interest for an unsecured loan compared to a secured loan. Interest rate premiums of between 1% and 3% quite common and if you have a badly impaired credit record, your application may well be declined.

As you would expect, lenders are far more relaxed if you agree to provide security. Typically the amounts you can borrow range from £5,000 to £75,000, and sometimes even more. And they'll allow you to spread your repayments over a longer period - 12, 15, 20 and 25 years are common. ( Insurance minimarket ) The choice is yours although to minimise your monthly repayment, you'll need to choose the longest repayment period you can. The interest rate you're charged will then depend on your credit rating.

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