Most high street personal loans are ‘un-secured’. Rather annoyingly, that sounds like a bad thing, but it isn’t. The alternative, and the kind you’ll see mountains of TV ads for, are ‘secured loans’, and for the following reasons I’d steer well clear...
* Your home could be taken away.
A secured loan literally means the debt is secured on your house (or something else you own), meaning if you can’t repay, the lender can repossess your home. With unsecured loans, it’s much much less likely this will happen.
* Personal loan rates are fixed, secured are usually variable.
Almost every unsecured personal loan is at a fixed rate; you know exactly what you’ll pay from the start, and it won’t change if the UK’s interest rates do, or on a lender’s whim.
Yet secured loans have variable rates, meaning the lender can up your payments when it likes; and they often do like to! In the past secured loan rates have been known to double, hitting people’s pockets hard.
* Secured loan repayments are stretched over many years.
Secured lenders often promise “one easy low monthly repayment”, while it may sound good, it’s done to stretch the debt over many years, so you pay more, and more, and more interest, costing you a fortune.
* Are you eligible for an interest-free Social Security loan?
Before going for commercial debt, it's worth seeing if there are any loans available from the government's social fund available to you. There are two types and both are for people without savings of their own.
The first are crisis loans, which are for emergencies or disasters, such as the roof falling in, or something that endangers your house or family. Anyone who doesn't have existing savings can apply.
The next type are budgeting loans, which are only for those receiving benefits. These will allow for a wide range of borrowings. For example, to pay for needed school uniforms or furnishings.
For more information read the debt help guide
As this is so important, in case I haven’t made the point strongly enough yet, here it is written large…
Secured loans give the lender security, not you. It’s far, far, better to take a normal unsecured personal loan than one secured on your house.
* Your home could be taken away.
A secured loan literally means the debt is secured on your house (or something else you own), meaning if you can’t repay, the lender can repossess your home. With unsecured loans, it’s much much less likely this will happen.
* Personal loan rates are fixed, secured are usually variable.
Almost every unsecured personal loan is at a fixed rate; you know exactly what you’ll pay from the start, and it won’t change if the UK’s interest rates do, or on a lender’s whim.
Yet secured loans have variable rates, meaning the lender can up your payments when it likes; and they often do like to! In the past secured loan rates have been known to double, hitting people’s pockets hard.
* Secured loan repayments are stretched over many years.
Secured lenders often promise “one easy low monthly repayment”, while it may sound good, it’s done to stretch the debt over many years, so you pay more, and more, and more interest, costing you a fortune.
* Are you eligible for an interest-free Social Security loan?
Before going for commercial debt, it's worth seeing if there are any loans available from the government's social fund available to you. There are two types and both are for people without savings of their own.
The first are crisis loans, which are for emergencies or disasters, such as the roof falling in, or something that endangers your house or family. Anyone who doesn't have existing savings can apply.
The next type are budgeting loans, which are only for those receiving benefits. These will allow for a wide range of borrowings. For example, to pay for needed school uniforms or furnishings.
For more information read the debt help guide
As this is so important, in case I haven’t made the point strongly enough yet, here it is written large…
Secured loans give the lender security, not you. It’s far, far, better to take a normal unsecured personal loan than one secured on your house.