Loans

Secured and unsecured loans: what's the difference?

A loan can be a big financial commitment. By taking one out, you will be required to give up a portion of your salary every month until the loan is paid off, and failing to do so could result in serious consequences.

There are two main types of loan: secured and unsecured. Each have their advantages and disadvantages, depending on a) your financial health and b) how much you want to borrow.

Unsecured Loans

Unsecured loan

An unsecured loan does not require you to secure anything against the loan – the lender relies on your contractual obligation to pay it back.

Because there is no security and the risk they are taking is therefore greater, the amount you can borrow tends to be less, and the repayment period is usually shorter.

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Secured Loans

Secured loan

If a loan is 'secured', it means it is secured against something you own (an 'asset') – and failing to repay the loan could result in the lender taking possession of that asset, and selling it to cover their losses.

The asset in a secured loan will normally be your home, but it can also be your car or another item of a high value.

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