Secured versus unsecured loans
A bit of clarification on the difference between secured and unsecured loans in response to an email from Nick Esher who asks why secured loans should (all else being equal) be so much cheaper. The point to remember here is that a ’secured loan’ actually protects the lender not you! It will be ’secured’ against one of your assets, typically your house. This is protection for the lender.
It means, effectively, that they could repossess your £200,000 home over non-payment of a loan of £5000. Unsurprising then that they will offer you a better rate of interest - interest on loans being inversely proportional to the risk involved. If you are 100% sure you will never default on your loan then this, in theory, is fine. Speaking personally though, the only loan I would take out against the security of my home would be the essential one - ie the mortgage. And mortgage companies tend not to repossess homes until they’ve exhausted every other option.
