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The Differences Between Secured and Unsecured Loans

When applying for a loan it is often an advantage to own a property, this is mainly due to the fact that it makes you eligible for a secured loan. Being eligible for a secured loan means that you can borrow anything from £3,000 to £50,000, with some lenders providing finance up to £100,000.

For those without a property to act as security for the loan, an unsecured loan is what many turn to. Unsecured lenders offer amounts ranging from around £1,000 to £25,000.

The main advantage of unsecured loans is that if the borrower fails to meet the monthly repayments and the loan defaults the lender is legally unable to repossess your home. Many looking for finance will turn to credit cards and overdraft facilities however the rates are often more expensive than unsecured loans, also it is often hard to gauge spending when using credit cards.

Due to the low rates of interest provided by secured loans, the unsecured market has been prompted to become much more competitive with interest rates, recently they have dipped to below 6%. On the other hand, the cheapest rates amongst unsecured loans are reserved for those with good credit history or those who are borrowing over £5,000.

Those with their own home who are looking for secured loans will be required to have almost if not completely immaculate credit history; where as some unsecured loans such as guarantor loans are specifically designed for those with poor credit history.

One similarity of the two types of loans is the willingness of the lenders to lend. With the credit crunch still in the forefront of the British economy and talks of a double dip recession, many banks and lenders are thinking twice about lending, especially to those with recent poor credit.

Due to the amount being lent out; the process of secured loans tends to be quite rigorous including many searches and checks of the applicant. As you move down the scale regarding the amount borrowed, the processes tend to get less rigorous and more lenient.

Payday loans contains very little if any checks on the applicant, this in turn correlates with the processing time, large homeowner loans can take up to 5-7 weeks to process, where as payday loans can be paid out within one hour of application.