When you’re looking for secured loans or unsecured loans, you often come across lots of lingo and jargon that you don’t quite understand. There are lots of three-letter-acronyms, lots of terms and conditions and lots of words like equity, collateral, secured and unsecured.
Sometimes, it can all get a little bit confusing.
That’s why, here at Bamboo, we try to take every opportunity to break things down into simple, easy-to-understand language. We’ve even written a quick glossary of those difficult to understand loan terms.
One of the questions we hear a lot is: what’s the difference between a secured loan and an unsecured loan? While our glossary has short definitions of these terms, we thought the question merited a proper response.
So, without further ado, here it is.
The difference between secured loans and unsecured loans
What are secured loans?
A secured loan, at its most basic, is a loan that is protected by some form of assets or collateral. The money is borrowed against the value of something else – usually a car or house – which means that, until the balance is paid in full, the lender owns the deed to the collateral.
If you fail to make your payments, then the lender is entitled to seize the collateral to set against
the amount owed.
What are unsecured loans?
Unsecured loans are the complete opposite of secured loans. No surprise there. They are personal loans that are available to most people with a fair credit score. They allow you to borrow money without any collateral.
Lenders take more of a risk when granting an unsecured loan. There’s no collateral to recover if repayments aren’t made so, they usually charge much higher interest rates.
Which one is right for me?
It all depends on your circumstances. If you’re a homeowner and you’re looking to borrow large amounts of money – upwards of £15,000, perhaps – then it makes sense to apply for a secured loan. You’ll get preferential rates and access to larger sums of money.
If you’re after smaller amounts of money or you don’t own any assets of great value, you’re not eligible for a secured loan. In this situation, it’s best to look for what kind of unsecured loan is best for you; unsecured or guarantor?
If you’re not sure which one is right for you, why not take our quiz? It only takes a few minutes, and it’s a lot more fun than reading lots of loan jargon!