What is a Personal Loan?
 by: John Mussi

A Personal loan can be divided into two categories: secured personal loans and unsecured personal loans. Homeowners can apply for a Secured personal loan (using their property as security), whereas tenants only have the option of an unsecured personal loan . Below is a more detailed outline of both types of loans:

Secured Personal Loan:

A Secured personal loan is simply a loan that is secured against property. Secured personal loans are suitable for when you are trying to raise a large amount; are having difficulty getting an unsecured personal loan; or, have a poor credit history. Lenders can be more flexible when it comes to Secured personal loans, making a Secured personal loan possible when you may have been turned down for an unsecured personal loan. Secured personal loans are also worth considering if you need a new car, or need to make home improvements, or take that luxury holiday of a lifetime.

Benefits of Secured personal loans include:

Lower monthly repayments than unsecured personal loans

The ability to borrow more money

Spread repayments over a longer period of time

More detailed information……

A Secured personal loan is a type of loan available to people with securable assets. Usually these assets take the form of property, such as a home; this is why Secured personal loans are often referred to as 'homeowner loans', “home loans” or “second charge loans”.

You do not have to own your own home outright to be able to take out a Secured personal loan; if you have a mortgage you can put the proportion of the home that you own up as security.

Because a Secured personal loan is secured on property, most lenders will approve your loan even if you have a history of adverse credit such as county court judgements (C.C.J's), defaults and arrears. This make Secured personal loans very attractive to people who would otherwise not qualify for a loan from their local bank.

You can borrow any amount from £5,000 to £75,000 and repay it over any period from 5 to 25 years. You simply select a monthly payment that fits in your current circumstances. Generally, Secured personal loans tend to be cheaper than unsecured personal loans and other forms of borrowing.

The interest rate for a Secured personal loan depends upon various factors such as the amount of money you borrow, the length of time and personal details. You can also insure your payments for peace of mind, so you do not have to worry if you lose your job or are unable to work because of accident or sickness.

Secured personal loans are arranged through leading financial institutions so you can be assured of a professional and responsible service.

Once your Secured personal loan application has been processed and accepted you will be made a no obligation offer. It usually takes around 14 – 28 days for a secured personal loan to be completed.

Unsecured Personal Loan:

An Unsecured personal loan is a personal loan where the lender has no claim on a homeowner's property should they fail to repay. Instead, the lender is relying solely on the ability of a borrower to meet their loan borrowing repayments.

The amount you are able to borrow can start from as little as £500 and go up to £25,000. Because you not securing the money you are borrowing, lenders tend to limit the value of unsecured personal loans to £25,000.

The repayment period will range from anywhere between six months and ten years. Unsecured personal loans are offered by traditional financial institutions like building societies and banks but also recently by the larger supermarkets chains.

An Unsecured personal loan can be used for almost anything - a luxury holiday, a new car, a wedding, or home improvements.

An Unsecured personal loan is good for people who are not homeowners and cannot obtain a secured loan for example; a tenant living in rented accommodation.

There are a few things to consider before applying for an Unsecured personal loan:

Unsecured personal loans are invariably more expensive than secured loans, and the repayment periods demanded by lenders are shorter too. This is because they have no guarantee that you can repay the loan, and therefore charge you more in interest to cover the cost of insurance policies that they need to take out to protect them should you default on repayments. In the event that a borrower does not pay up, the lender will invoke the terms of the legally-binding credit agreement and pursue the borrower through the legal system.

Lenders are obliged by law to tell you how much they charge for this type of finance and this is worked out as an annual percentage rate (APR). Ask whether the APR figure quoted is ‘typical' or is what every applicant is charged. You should also investigate whether the interest rate charged is fixed for the lifetime of the loan repayment period, or whether it varies with the base rate. Check too on whether there are early repayment penalties.

Unsecured personal loans vary from lender to lender, so it pays to shop around before making a final decision.

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