Secured Loan Vs Unsecured Loan

If you need to raise finance but aren't sure whether to opt for a secured (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.

3) Can you provide proof of your earnings? If yes then you may have the choice of either. If you don't have proof of income and you're a homeowner, a second charge is the only option available and with restricted choice of lenders following the credit crunch. There are still some lenders that will consider, what is called a "self certification of income" for self employed with no proof of income, but these lenders are in short supply these days.

4) Do you have sufficient equity in your property? Most lenders only accept a certain % of the equity available when they consider whether to approve a secured loan and this varies according to market conditions. For employed applicants, lenders will usually consider a higher % LTV (loan to value) than for self employed as they are perceived as less of a risk.

5) 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 second charge loan can be found with some specialist lenders.

6) Do you need the funds quickly? If yes, then an unsecured loan can be arranged far quicker than a second charge and typically this can complete in around 2 weeks, whereas a second charge will take approx 4 weeks.

7) 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.

8) 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, although typically some secured loan lenders only operate through loan brokers, so it may be a brokers site that advertises an interest rate.