An unsecured loan is one that does not require the borrower to pledge the amount against an asset, usually a property. In contrast, a secured loan or mortgage gives the lender rights over a homeowner’s property in the event that the borrower defaults on the loan repayments.
If, however, you have made your own comparisons between unsecured and secured loans, you will noticed the interest rates for the former are substantially higher. This is due to the greater risk being taken by the lender. As a hedge against possible court costs and losses in the event of a default, unsecured loan companies insure the risk. This cost is passed on to the borrowers who then ultimately pay extra for their credit facility.
Also, because lenders do not have the automatic guarantees brought by the security of the borrower’s home, the amounts available as an unsecured loan tend to be limited to a maximum of £25,000 for most people.
As a rule of thumb, if you need more than £25,000 and plenty of time to pay, an unsecured loan is not for you.
