If you’re looking for a loan but aren’t sure whether to opt for a secured loan (second charge) or an unsecured loan, there are a number of points you should consider 1st of all which may help you make the right decision:
1) Are you are homeowner? If yes then you have the choice of either loan option. If no, then an unsecured loan is your only option as you have no security to offer a lender.
2) Are you looking for the cheapest rate of interest? If yes, then it is more likely that a secured loan will offer a cheaper rate as a lender is less exposed to risk by using your property as security. Unsecured loan rates tend to be a little higher as lenders dont have any security or collateral for the loan.
3) Can you provide proof of your earnings? If yes then you may have the choice of either, but if you you’re self employed with no proof of earnings, most unsecured lenders wont consider the enquiry and therefore a secured loan may be the only option.
4) Do you have a bad credit history (mortgage arrears, CCJ’s defaults)? If yes, then it is highly unlikely that any lender will consider an unsecured loan for you, but in certain circumstances and equity permitting a bad credit secured loan can be found with some specialist lenders.
5) Do you need the funds quickly? If yes, then an unsecured loan is preferable as it can usually be arranged far quicker than a secured loan and typically can complete in around 2 weeks. A secured loan can take around 4 weeks to complete due to the additional references required and valuation on the property.
6) Will I have to pay a broker fee? If you use the services of a loan broker for either loan option, then it is likely that you will have to pay a broker fee, although this is usually charged and shown on the loan agreement. You should not pay any up front fees for any loan.
7) How do I find the best lenders & rates? If you’re confident enough you can search online and find the best deals for either loan option, although typically some secured loan lenders don’t advertise to the general public and only operate through loan brokers.
This list is by no means exhaustive but may give you an insight into deciding whether an unsecured loan or a secured loan is the better option for you.
