When it comes to shopping around for great loan deals, you might have come across the terms ‘secured loan’ and ‘unsecured loan’. But what is the difference between the two?

There’s one major difference. Secured loans are those taken out, secured, by the lender, against a valuable asset of yours – usually your home. Unsecured loans are not secured against anything. But what does this mean for the loan itself and what does it mean for the consumer?

Secured Loans

  • Secured against your home and the amount you can lend is often based on how much equity you have in your property.
  • Secured loans usually have lower interest rates.
  • Secured loans are only available to home owners, or those who have an equally valuable asset.
  • If you fail to make payments, you risk losing your home.

Unsecured Loans

  • Unsecured loans are not secured against any asset or collateral and are therefore available to those without valuable assets.
  • Unsecured loans often come with higher interest rates than secured loans, largely because they are seen as more of a risk for the lender.
  • If you fail to make payments on an unsecured loan, your home will not be at risk.

The difference between secured and unsecured loans could therefore be summarised quite simply by saying that one is riskier for the consumer and one is riskier for the lender. With secured loans, the lender has the reassurance that one way or another, they will have a good chance of recovering their money even if you fail to meet repayments. With an unsecured loan, the consumer has the security of knowing that if they become financially incapable of making payments, their home need not be at risk.