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Secured and Unsecured Loans


There are two different types of loan – unsecured and secured loans. Both come with their own advantages and disadvantages. But which type you choose will generally depend on three things: your credit history, the amount you need to borrow, and what the loan is for. For instance, if you have a good credit score, and need to borrow a large amount of money to buy a property, you’ll need to take out a mortgage, which is a secured loan.

Difference Between Secured and Unsecured Loan

The obvious difference between secured and unsecured loans is the ‘security’. This means securing the value of the loan against something of equal or greater value. Security can also be called collateral – if you default on the loan, the collateral may be forfeit.

Unsecured Loan Meaning

An unsecured loan doesn’t require collateral. You simply make an agreement with the lender to make a one off or monthly repayments. Generally, you can borrow between around £100 and £25,000. If you are unable to keep to the repayment terms, this can have a negative impact on your credit rating. The lender will also have the option to take legal action, but as there is no collateral, your property can’t be repossessed. 

As there is more risk for the lender with an unsecured loan, the interest tends to be higher. Though it’s important to keep in mind that you only pay interest for the length of borrowing. So if you’re only taking out a short term loan, you may pay back less interest overall.

Secured Loan Meaning

A secured loan does need collateral. The most common example of a secured loan is a mortgage – your property acts as collateral against the loan. This means higher risk for the borrower, as defaulting on the loan can lead to your home being repossessed. The upside is that lenders offer lower interest rates for secured loans, to compensate for this risk. Another great example of a secured loan is a car finance agreement – here, your vehicle acts as the collateral.

Secured loans are generally of much higher values than unsecured loans. Mortgages are almost always hundreds of thousands of pounds, while secured business loans can be for millions.

Key Points

Secured and Unsecured Loan Examples

There are a number of different types of both secured and unsecured loans. Depending on your situation, each one had its pros and cons. But no matter what you’re looking for, there should be a suitable loan solution. And if you’re not sure what type of loan would work best for you, it may be a good idea to speak to a credit broker. 

We’ve listed some of the main examples of unsecured and secured loans below:

Secured Loan Examples

Secured and Unsecured Loan

Unsecured Loan Examples

What is an Unsecured Debt Consolidation Loan?

As mentioned above, one of the options when it comes to unsecured personal loans are debt consolidation loans. Because they are unsecured, you are not risking your home being repossessed should you be unable to keep to the repayments. Secured debt consolidation loans do also exist, though they tend to be less common.

If you are considering debt consolidation as an option, it can be helpful to seek free and independent advice from companies such as the Citizens Advice Bureau and Step Change. They can help you decide whether debt consolidation is the right choice for you. 

Essentially, the benefit of taking out one larger loan to pay off lots of smaller loans is to reduce the amount of interest you’re repaying. This way, you’ll only be paying interest on one loan, rather than several. It is important to check though, that the debt consolidation loan offers low interest rates, to ensure that you do pay back less overall. Your monthly debt repayments should reduce too, with a debt consolidation loan. 

Another advantage of debt consolidation is having fewer outstanding creditors. If you have too many open loans, you may find it more difficult to take out future credit. It’s additionally good to note that consolidation loans should not impact your credit score. As long as you’re able to keep up with the repayments, this type of loan will be reported just like any other. 

So if you’re looking to take out a debt consolidation loan, or any other type of unsecured loan, My Financial Broker can help! Once we know how much you’re looking to borrow, and what the loan is for, we can put you in touch with the lender best suited to you. Simply click the button below for a free no obligation quote.