Secured or personal loan - which is right for you?
Which type of loan suits you?
Our guide will help you get to grips with both secured and personal loans – and which option could be right for you.
Loans can come in different shapes and sizes. They can come with varying interest rates, some could require a guarantor, and others are secured to your home.
In this guide, we take a side-by-side look at personal vs secured loans – and which could be the better option for you.
What’s the difference between a secured and a personal loan?
The difference between a secured and personal loan is in the name – a secured loan is secured against something you own, while a personal loan isn’t secured against anything.
With a secured loan, the money you borrow is typically secured against your home. That’s why you might often hear it being called a ‘homeowner loan’ instead. This means that the lender has a stake in your home until you repay the loan in full.
Whether your loan is secured or not can mean there are certain differences between the two. For example:
The amount you can borrow
The amount you can borrow with either type of loan will ultimately depend on your lender and your eligibility.
However, you can typically borrow more money with a secured loan compared to a personal loan. With a secured loan, you can often borrow over £20,000 – which would be uncommon for a personal loan.
That’s because, as you’ve offered your home as collateral, lenders are taking on less risk with secured loans. As it’s easier to trust you when your home is involved, they feel more confident lending you higher amounts of money.
The amount of risk
While there might be less risk for the lender, you’re taking on more risk with a secured loan.
If you fall behind with your personal loan repayments, you could be taken to court or the account could default. However, if you repeatedly miss your secured loan repayments, the risk could be more severe. Not only could you still face legal action, but your home could be at risk too.
That’s why it’s important to only ever apply for a secured loan if you’re completely confident you can keep up with the repayments. And, if you think you might have trouble with the repayments, to speak to your lender as soon as you can – they could help you before the situation escalates.
The interest rates
Another difference you might find comparing secured or personal loans is the interest rates that are available to you. It all comes down to your level of risk again. Because you’re taking on more risk with a secured loan, you could be compensated with lower interest rates.
Personal loan interest rates may be fairly high if you have a bad credit score. This is because, for personal loans, your credit score is the main factor which determines how risky you are – and a poor credit score suggests you might not repay your debts on time.
With secured loans, though, your risk factor is significantly lowered when you offer your home as security. Plus, your credit score is only a part of your secured loan eligibility. Like your affordability and mortgage, there are other factors which can boost your chances of being accepted – even if you have a poor credit score.
Should I choose a secured or personal loan?
Whether you chose a secured or personal loan entirely depends on you and your circumstances. To help you decide which could be the better choice for you, ask yourself these key questions:
Do you own your own home?
This is the biggest deciding factor when it comes to choosing your type of loan. If you have a mortgage, you could apply for either a secured or a personal loan. However, if you haven’t stepped onto the property ladder yet, you won’t be able to apply for a secured loan.
What’s your credit score?
Your credit score is an important part of any loan application – whether you’ve chosen a secured or personal loan.
However, a bad credit score can be more of an issue when it comes to personal loans. As mentioned earlier, your credit history can play a bigger role when you apply for a personal loan – as there’s little else to figure out your level of risk.
So, if you’re a homeowner and you have a bad credit score, you might find it’s easier to be accepted for a secured loan.
How much do you want to borrow?
How much you’re planning to borrow will also affect whether you choose a secured or personal loan.
For smaller purchases, like a new laptop for work or money to repair your car, a personal loan could make more sense. Personal loans typically start from a few hundred pounds up to several thousands. It’s unlikely that you’d find a personal loan that allows you to borrow more than £20,000.
On the other hand, a secured loan is ideal for covering bigger costs. If you’re looking to borrow enough for major home renovations or debt consolidation, a secured loan could help you. For example, you could borrow up to £50,000 to cover expensive purchases with Evolution Money.
How long would you like to repay the loan?
If you’d like to be debt-free as soon as possible, you might find that a personal loan offers shorter repayment terms. Alternatively, if you’d rather benefit from smaller monthly repayments, you could spread the cost over 20 years or more with a secured loan.
Remember, it’s worth bearing in mind that longer repayment terms can mean more interest paid in total.
Finding the right secured loan for you
At Evolution Money, we specialise in offering simple and affordable secured loans. If you’ve read our guide and decided a secured loan is right for you, we’ll work with you to find a deal that suits you and your lifestyle.
For a typical loan of £30,000.00 over 120 months with a variable interest rate of 19.56% per annum, your monthly repayments would be £598.34.
Including a Product Fee of £2,400.00 (8% of the loan amount) and a Lending Fee of £807.00, the total amount repayable is £71,800.20.
Annual Interest Rates ranging from 11.88% to 29.38% (variable). Maximum 50.00% APRC. The loan must be paid back by your 70th birthday. Read more.
Think carefully before securing debts against your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
