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THE KEY DIFFERENCE BETWEEN SECURED AND UNSECURED
LOANS
Secured loans are a form of borrowing that is available
to property owners or mortgage holders only. Sometimes
referred to as 'homeowner loans' (for example Asda Finance),
they rely on the fact that the borrower has some form
of collateral from which to recoup losses if payments
are unable to be met.
This system provides security for the lender; in the
event that a borrower cannot meet the repayments required,
the lender can enforce the sale of the homeowner's house
to cover the cost of the original loan.
Unsecured loans are also known as personal loans. This
means that money is made available for any purpose the
borrower requires; buying a car, home improvements or
settling credit card debts, for example. The repayments
are made over a fixed period of time at a fixed interest
rate. These differ from secured loans in that there
is no automatic link to the borrower's property. The
lender can, in certain circumstances, obtain a Court
Charging Order while can lead to a Repossession Order
- but
this is unlikely and the process is much harder to undertake.
Secured loans are useful for homeowners with or without
a positive credit score, as the increase in house prices
allows them to release that equity. Homeowners without
a positive credit score can still undertake homeowner
loans, as the security involved for the lenders makes
them more likely to lend. There is also the potential
to borrow larger sums of money: the most you can borrow
using an unsecured loan is £25,000 whereas secured
loans offer up to £100,000.
Competition for custom with both types of loan is fierce
between financial institutions, such as banks and building
societies. However, supermarket chains have now entered
the fray and increased the competition even further:
Asda Finance and Alliance & Leicester have both
implemented competitive loan policies for both unsecured
and secured loans.
With the plethora of offers and deals available, the
tricky part for the consumer is to decide which one
to apply for. Martin Lewis of money-saving-expert.com
suggests a financial re-shuffle before applying, to
make sure that you are not overstretched when it comes
to repayments.
The simplest way to find a good deal for secured loans
is to begin with your mortgage lender. Many of these
offer preferential rates for their customers and, while
it may not be the cheapest, it is a useful figure to
compare others against.
The next step is to use a price comparison website.
Sites like Motley Fool or MoneySupermarket are free
and easy to use to compare secured and unsecured. They
are independent third parties that have no vested interest
in 'pushing' a certain product. You will be required
to enter a few details into their 'loan calculator'
or 'loan comparator' to allow them to search the internet
and compare the best deals for your situation.
These comparator websites also have the facility to
scour the banks, building societies and supermarkets
for the best deals for unsecured loans which, although
offer smaller sums over smaller periods of time, can
still be as effective according to your circumstances.
Author: Jay Smith
Asda offer competetive deals on both secured and unsecured
loans. Find out more by visiting
http://www.asdafinance.com/loans.html
Keywords : unsecured loans, secured loans
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