When you have decided to take out a loan, you need to figure out which type will best suit your needs. Do you want to secure it against your property or not? Before you can make a huge decision like this, you need to very clearly understand what the differences are.
What are the differences?
Loans that are secured against property that already has a mortgage are known as second charges and loans that are taken out against property that is owned with no mortgage are known as first charges. These types of loans were considered to be a last resort for people who needed a loan and had no security. They were only available through a broker, who then charged very high amounts of commission.
Unsecured loans are now becoming more and more difficult to find, because lenders are choosing to be a lot more selective about whom they are willing to lend money too. If you have a bad credit history, your chances of getting approved for an unsecured loan are little to none. Discover the best personal loan for you by looking online.
It is for this reason that secured loans are becoming more popular, and the fact that you can get access to large amounts of money this way. If you want to borrow smaller amounts o cash, then it is advisable to rather go for the unsecured type of loan.
You do need to remember that the amount that you are allowed to borrow, the interest rate and the amount of time that you have to pay it back will all depend on how much equity you have in your home and your ability to pay it back.
The advantages and disadvantages
Unsecured personal loans are quick flexible regarding repayment terms and the amount you can get, but the maximum that you can get is about £25,000. Some of the lenders will allow you to get a flexible offer that allows you to make bulk payments and over payments, which will then make the payment period shorter and the interest lower. If you’re not sure what you can afford to borrow, and how much you can afford to pay back, use the Lloyds online loan calculator.
Secured loans on the other hand, allow you to borrow as much as £100,000. As with unsecured loans, you will have to make regular monthly payments over an agreed period of time, which is anywhere from three to twenty-five years. If you choose to take out a secured loan, be sure to make regular payments or you could end up losing your home.
If you take out an unsecured loan, you do not risk losing your home, but it will affect your credit rating if you miss payments. A bad credit rating will make it very difficult to get future credit. You will also be charged late payment fees. It is very important that you make sure that you have enough money every month to make the payments.
What are the alternatives?
A credit card may be your best bet if you are only looking to borrow a few thousand pounds. Many credit card companies offer clients interest free periods on purchases and balance transfers. Borrowing from a credit card can end up being a lot cheaper than taking out a loan, especially for small amounts. Some card providers apply what they call ‘a repayment order’, which means that the smallest amount of debt will be cleared first. It is not a good idea to use that card for spending and debit transfers.
If you are looking to borrow more than just a few thousand pounds, then you may want to remortgage your home and release some of the equity. Mortgage rates are a lot lower that loan rates, which is why many people are opting to go this route. There are costs involved in making the switch, so make sure that you fully understand the terms before making a decision.
Secured loans will normally work out cheaper than remortgaging your home. If you are in year three of a five-year contract, you will have to pay back £20,000 on a £200,000 property to change the terms of the original deal. Credit providers are becoming more and more aware that people are in financial difficulty and it is therefore becoming harder to