The key difference between secured and unsecured loans

The key difference between secured and unsecured loans
Secured loans are a form of borrowing that is available to
property owners or mortgage holders only. Sometimes
referred to as ‘homeowner loans’ (for example
Asda Finance), they rely on the fact that the borrower has
some form of collateral from which to recoup losses if
payments are unable to be met.

This system provides security for the lender; in the event
that a borrower cannot meet the repayments required, the
lender can enforce the sale of the homeowner’s house
to cover the cost of the original loan.

Unsecured loans are also known as personal loans. This
means that money is made available for any purpose the
borrower requires; buying a car, home improvements or
settling credit card debts, for example. The repayments are
made over a fixed period of time at a fixed interest rate.
These differ from secured loans in that there is no
automatic link to the borrower’s property. The lender
can, in certain circumstances, obtain a Court Charging
Order while can lead to a Repossession Order – but
this is unlikely and the process is much harder to
undertake.

Secured loans are useful for homeowners with or without a
positive credit score, as the increase in house prices
allows them to release that equity. Homeowners without a
positive credit score can still undertake homeowner loans,
as the security involved for the lenders makes them more
likely to lend. There is also the potential to borrow
larger sums of money: the most you can borrow using an
unsecured loan is £25,000 whereas secured loans offer
up to £100,000.

Competition for custom with both types of loan is fierce
between financial institutions, such as banks and building
societies. However, supermarket chains have now entered the
fray and increased the competition even further: Asda
Finance and Alliance & Leicester have both implemented
competitive loan policies for both unsecured and secured
loans.

With the plethora of offers and deals available, the tricky
part for the consumer is to decide which one to apply for.
Martin Lewis of money-saving-expert.com suggests a
financial re-shuffle before applying, to make sure that you
are not overstretched when it comes to repayments.

The simplest way to find a good deal for secured loans is
to begin with your mortgage lender. Many of these offer
preferential rates for their customers and, while it may
not be the cheapest, it is a useful figure to compare
others against.

The next step is to use a price comparison website. Sites
like Motley Fool or MoneySupermarket are free and easy to
use to compare secured and unsecured. They are independent
third parties that have no vested interest in
‘pushing’ a certain product. You will be
required to enter a few details into their ‘loan
calculator’ or ‘loan comparator’ to allow
them to search the internet and compare the best deals for
your situation.

These comparator websites also have the facility to scour
the banks, building societies and supermarkets for the best
deals for unsecured loans which, although offer smaller
sums over smaller periods of time, can still be as
effective according to your circumstances.

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Asda offer competetive deals on both secured and unsecured
loans. Find out more by visiting
http://www.asdafinance.com/loans.html .