The most common form
of secured loan is called a "further advance" and is made against your home by borrowing extra on your mortgage (your mortgage is itself a secured loan), although
further advances can also be taken with a lender other than your current mortgage provider, who will then take what is called a "second charge" on your home. Because secured loans are less
risky for the lender, they are usually cheaper than unsecured loans. With a secured loan, the lender has the right to force the sale of the asset against which the loan is secured if you fail to keep
up the repayments.
Secured loans are mostly suitable for borrowing large amounts of money over the longer term, for example for home improvements.
An unsecured loan means the lender relies on your promise to pay it back. The lender is taking a bigger risk than with a secured loan, so interest rates for unsecured loans tend to be higher. You normally have set payments over an agreed period and penalties may apply if you want to repay the loan early. Unsecured loans are often more expensive and less flexible than secured loans, but suitable if you want a short-term loan (one to five years).
Allan Connochie Mortgage Consultancy Ltd T/A Simply Mortgages Plus is an appointed representative of PRIMIS Mortgage Network. PRIMIS Mortgage Network is a trading style of Personal Touch Financial Services Ltd, which is authorised and regulated by the Financial Conduct Authority.