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Secured vs Unsecured loans: What's the difference?

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Financial jargon can feel really complicated. Secured loans, unsecured loans, APRs, credit scores, it's enough to make anyone scratch their head.

At V12 Personal Finance, we believe finance should be simple, straightforward and easy for you to understand so you can make the best decisions for you. 

We're here to help you understand the difference between secured and unsecured loans. Whether you're planning a home improvement project, buying a new sofa, or covering unexpected costs, understanding your loan options is the first step to making the best decision for you.

What is a secured loan?

A secured loan is a type of borrowing backed by an asset, usually your home This means the lender has a form of security in case you're unable to repay the loan.

Key Features of secured loans:

Typically available for larger loan amounts. Our panel offers up to £500,000
Often available over a longer term, with our panel it's up to 35 years 
May offer lower interest rates
Requires an asset as collateral (e.g. property)

Remember:
•    Can affect your home ownership if repayments are missed
•    Broker and lender fees will be payable upon completion

Secured loans are often used for big-ticket items like major home renovations or large amounts of debt consolidation. It's important to remember though, that if you don't keep up with repayments, your home may be repossessed.

What is an unsecured loan?

An unsecured loan doesn't require any collateral. Lenders assess your creditworthiness based on your income, residence status, age, credit history and financial behaviour.

Key features of unsecured loans:

No collateral required
Faster approval process with money often in your account in less than 2 hours.
Ideal for smaller loan amounts, our panel offers loans from £2,000 to £35,000
Often available over a shorter term, so will be paid off sooner. Our panel offers terms of 12 months to 7 years.
Interest rates may be higher than secured loans

Unsecured loans can be perfect for everyday borrowing and popular for funding holidays, car repairs, big events or unexpected expenses. They're accessible and don't put your assets on the line.

Should you apply for a loan?

Everyone's circumstances are different but understanding personal loans is pivotal before applying for one. 

Taking out a loan means committing to regular repayments over a set period and missing those payments can negatively impact your credit score, result in additional fees, and make future borrowing more difficult. 

It's also worth noting that borrowing more than you can comfortably afford may cause financial strain. 

It's important to carefully consider the type of loan that best suits your needs, as well as the term and amount that are suitable and affordable to you. If you are a homeowner, you can apply for a secured loan and might be asked to put your home up as collateral against the loan.

At V12 Personal Finance, we encourage responsible borrowing and offer tools like our personal loan eligibility checker to help you assess your options safely and confidently with no impact on your credit rating at the eligibility check stage.

It's important to remember that a full credit search will be carried out once you've chosen to apply for a loan with your chosen lender, and Credit Reference Agencies may keep a record of that search.

Are you eligible for a personal loan?

 

Secured vs unsecured loans explained

Table comparing the differences between secured and unsecured loans

Secured loans can offer lower rates but higher risk if you can't keep up repayments.  It is vitally important to consider your ability to repay the loan before making a full application.

You can apply for a secured loan and might be asked to put your home up as collateral against the loan. Therefore, if you fail to keep up with repayments, your home will be at risk of repossession.

Meanwhile, unsecured loans can offer convenience and speed but may come with higher costs.

How V12 Personal Finance can help

At V12 Personal Finance, we specialise in matching you with our panel of lenders and brokers offering simple and transparent secured and unsecured personal loans.

Why choose V12 Personal Finance?

Access our trusted panel of lenders and brokers
Soft credit check: check your eligibility without affecting your score
Fast decisions: get personalised unsecured loan options in around 2 hours
Flexible repayment terms: choose the term and payments that works for you 

 

We believe borrowing should be empowering, not intimidating. That's why our personal loan eligibility check is built to give you clarity and confidence without the commitment.

Check your personal loan eligibility

 

A secured loan requires collateral, usually your home, while an unsecured loan does not. Secured loans often offer lower interest rates and longer terms (the amount of time you borrow over), but come with the risk of losing your asset if repayments are missed. Unsecured loans are quicker to access and ideal for smaller borrowing needs and shorter terms.

As with secured loans, it depends on your individual circumstances and the lenders criteria. Our eligibility check will indicate your likelihood of being accepted based on your loan offers and the information you have provided. Unsecured loans do typically have a faster approval process as they don't require collateral. Approval depends on factors such as your age, residence status, credit score, income, and financial history.

It may be possible, secured loans are backed by an asset, and this could help homeowners Lenders may be more willing to offer a loan if you provide collateral, and there are lenders who offer loans to people with lower credit scores. Whatever the loan type, you should expect a thorough credit check, and review of your personal finances and circumstances, and where a poor credit history is a factor, higher interest rates or lower loan amounts may be offered.

Missing repayments on a secured or unsecured loan can negatively impact your ability to take out future credit and mean you could incur charges. Missing repayments on a secured loan can put your collateral at risk of repossession. It's crucial to borrow responsibly and ensure repayments are affordable.

Unsecured loans are safe when borrowed from a reputable lender. They don't put your assets at risk, but missing repayments can still affect your credit score and lead to fees and problems with future borrowing.

Secured loans can be safe when used responsibly and with a clear understanding of the terms. These loans are backed by collateral (usually property) which means lenders may offer lower interest rates and higher borrowing limits. However, because your property is used as collateral, there is a risk of repossession if you fail to keep up with repayments.

Yes, but it depends on:

  • Your circumstances
  • Lender criteria

Always consider the risks before securing debt against assets.