Personal Loans

There are literally hundreds of different personal loans on offer, online and off, and it's sometimes difficult to tell which product is right for you. But while there are a large number of different loan products and lenders available in the market, these will always usually fall into one of two distinct types - either secured or unsecured.

What is a secured loan?

Basically, a secured loan is one for which you provide some form of security or collateral (usually your house) in order to cover the amount borrowed in the loan. In the event that you cannot repay the loan and you default on it, the lender then has the right to force you to sell this collateral in order to recover the money that you owe to them. The collateral is usually a house or other property.

The benefits of secured personal loans are:

• A better interest rate, as the lender has covered the risk of potentially losing their money with the collateral.
• Higher borrowing amounts are usually possible - up to the value of the collateral.

The disadvantages are:

• You may not have collateral or be a home owner.
• Your property or collateral, maybe even your home, is at risk if you cannot meet the repayments.

What is an unsecured loan?

An unsecured loan is a loan that does not require collateral.

The advantages of unsecured personal loans are:

• Your home or other property is not at risk if you fail to make the repayments.
• They are usually faster to arrange.

The disadvantages are:

• The interest rate is usually slightly higher.
• Generally speaking, lower borrowing amounts are possible.

Which type is best for me?

It is impossible to say without knowing all your circumstances. However, generally speaking, you will only have the choice of a secured loan if you are a homeowner. If you are not a homeowner, you will probably not be able to get a secured loan unless you have other assets such as other property to use as collateral. Another general point is that larger personal loans are better suited to secured loans, and smaller amounts to unsecured personal loans.

Explore Finance offers competitive personal loans, and as we are one of the UK's largest independent loans brokerages, we help thousands of people every week. You can apply online here.