Secured vs unsecured loans

Secured and unsecured loans are two different ways to borrow money from a lender. The type of loan you choose can affect how much you can borrow, how long you repay it for, and what happens if you don’t meet your repayments. 

If you’re thinking of taking out a loan, it’s useful to understand the difference between secured and unsecured loans. Read on to learn more about how they work, including the main features and considerations. 

In this article:

  • What is a secured loan?
  • What is an unsecured loan?
  • What is the difference between unsecured and secured loans?
  • Which one is right for me?
  • What are my other options?

At Lloyds Bank, we mainly offer unsecured loans. The only exceptions are our mortgages, which are secured against the value of your house.

What is a secured loan?

Like other loans, a secured loan lets you borrow a lump sum of money and pay it back over a set period of time. But the main feature of a secured loan is that the value of the loan is secured against an asset such as your house or car. That way, if you can’t repay the loan, the lender can recover the money from the asset.

Secured loans can be useful for borrowing larger sums of money because the lender has more security. Examples of secured loans include: 

  • Mortgages – to buy a property. The property is then used as collateral for the loan.
  • Second mortgages – use the equity you have in your home as collateral.
  • Home equity release – let you borrow money against the equity of your home, usually through your current mortgage provider.

What is an unsecured loan?

Also known as personal loans, unsecured loans don’t need any collateral. You just need to make regular repayments based on until the debt is paid. This is often over a shorter period than a secured loan. 

Unlike secured borrowing, there’s no assets held against unsecured loans, meaning interest rates tend to be higher.  

Unsecured loans can cover a range of things, including:

What is the difference between secured and unsecured loans?

It’s important to know the difference between secured and unsecured loans. That way, you can make a more informed decision about how to borrow money. 

You’ll pay interest on both types of loan, but they can vary in risk and how much you can borrow. Look at the main differences:

 

Secured loan

Unsecured loan

Secured loan

  • Lenders may be more likely to accept your loan application as it will be secured against an asset.
  • Secured loans can help you borrow more money, such as a mortgage on a house.
  • Secured loans often offer longer terms, sometimes up to 40 years, which can reduce the cost of your monthly payments. 
  • You may risk losing your valuable assets if you can’t meet the repayments. 
  • Longer payment periods can offer lower interest rates. Some secured loans may rely on variable interest rates, which could increase the cost of your repayments. 

Unsecured loan

  • Lenders don’t secure your loan against an asset, so unsecured loans will rely more on your credit history.
  • You can usually take out smaller unsecured loans, starting from £1,000. 
  • It can be easier to pay an unsecured loan off early, often with lower early repayment charges.
  • While you may not have the risk of losing your assets, if you forget to pay or make a late repayment, lenders could charge you extra. Late and missing payments can also reflect poorly on your credit score.  
  • Although you can select shorter loan terms, interest rates can be higher.

Secured and unsecured personal loan - which is right for me?

The right loan for you can vary for several reasons. Both secured and unsecured loans could be right for you at different times in your life. 

There are various factors that can impact which loan is best for you and whether your loan will be accepted. These include:

  • Your eligibility.
  • Your credit history.
  • The purpose of your loan.
  • How long you'd like to repay.
  • Existing borrowings and debts.
  • Your financial situation, including how much you can afford to borrow.

At Lloyds Bank, all our personal loans are unsecured. The only secured borrowing option we offer is on our mortgages. Look at your personal loan options:

 

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Looking to compare our loans?

Find out more about personal loans to see if an unsecured loan is right for you. Take a look at the different personal loans available with Lloyds Bank.

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What are my other options?

Not sure a loan is right for you at the moment? No problem. There are other ways to borrow. Learn more about the borrowing options available and find the best choice for your lifestyle.

Want to learn more about loans?

Already have a loan with us?

Want to learn more about loans?

Already have a loan with us?