Personal or Secured Loans? How to Make the Right Choice for You
What's the difference?
Personal loans are loans that are secured on you - on your wages, on your promise and on your credit history. If you do not pay then you will be at the mercy of penalties, bailiffs and even the law. On the other hand, secured loans are secured on something you own, like a business, shares or most commonly, your home. If you do not pay these then whatever you secured against the loans, your home for example, will be at risk.
What can personal loans do for me?
Personal loans are great for those with little or no equity in their home, or those who do not own a home altogether. More and more people in the UK are choosing to rent due to massive house prices, so it's not uncommon to find people who cannot get secured loans. Personal loans can be quick and easy to get, sometimes after a few phone calls. They are usually smaller than secured loans, but they could be the answer for short-term, quick financial solutions.
What about secured loans?
Secured loans are secured on collateral, most often your home. They are a little harder to secure compared to personal loans, because in affect they are a second mortgage, on top of your existing debt. But they are also available in much higher amounts, and may be easier to get even if you have bad credit or a low wage. They are also not entirely dependant on your job situation or your current income.
Is one better than the other?
Not at all. Just because secured loans are backed by a property, it does not make them any safer. A borrower still needs to be able to afford the loan, and they still need to make regular payments on that loan. Both loans will be subject to credit history checks and both loans will demand a sensible and well-thought out approach regardless.
Personal loans are a solution for those who do not have the collateral, secured loans for those who may have a more complicated situation, or that extra bit of equity in their investments.
So which one do I choose?
Only after you take a good look at your finances and have taken advice from a trusted adviser can you make the choice between secured loans or personal loans. A homeowner may find a personal loan a better option thanks to bad credit and a lack of equity, and someone who is not a homeowner may find that they have equity and didn't know about it - it could be a business, a bond, an investment or even an inheritance that can be considered a security for loans. Regardless, both loans could be the right choice - but without the right advice and the right level of thought both could be the wrong choice.
