When borrowing money from a lender it is important to have an understanding of the terminology used and to ensure that you have a full grasp of what it is you are committing to. Taking out any type of financial product or service is an important decision to make, so here we have put together a short guide to help you understand the simple differences between a secured loan and a personal loan, as well as what it means to take out short-term loans through a payday loan company.
There are some key differences between these different financial products, so let’s first take a look at unsecured personal loans. When you borrow money through an unsecured loan you are not required to put up any type of security in the form of your home or another type of property. An unsecured loan is traditionally awarded to those seeking anything between £1,000 and £25,000 in loans (although you can seek out larger sums of money from specialist providers in some cases). These unsecured loans can be used over a period of one to seven years in most cases and you are free to do with the money as you wish (within legal reason) as long as you have gained the approval of the lender in advance and can prove that you have the means to pay back the loan. In most cases lenders will not provide an unsecured loan for commercial purposes. There is not as much risk attached to an unsecured loan from the point of the borrower, as you are not likely to have your home repossessed for example if you cannot afford to make repayments. Although as with any missed loan payment your credit rating will be damaged if you are not careful with your payments.
Payday loans are smaller versions of unsecured loans, with a short-term loan agreed from anywhere between £100 and £1,000 in most cases. Repayment terms are deliberately short (between 2 weeks and 5-months usually) with a view of providing short-term financial respite without adding greater financial worry through additional high interest levels attached to the lump sum repayable.
Secured loans are also known as a second charge mortgage, allowing a person to borrow money secured against a property they own. It is treated in the same way as a regular mortgage, with the same rules and monthly repayments to be made by the borrower. A secured loan is usually only considered for applicants seeking up to £100,000 and those who have built up equity in a property they own, and are generally paid back over a 25-year period in the same way as a regular mortgage.
It is important to be fully informed about the choices you have to make when seeking to take out a personal loan, a secured loan, or a payday loan. Always find the lender that you can trust the most, with a responsible and transparent approach to lending that gives you much more control over proceedings and the repayment terms.