Article by: David Woody

Loan advertising has really peaked in the last few years, it is almost impossible to read a newspaper or magazine without seeing a plethora of loan advertisements promising us that we can "clear all our existing credit now" or get "loans up to £25,000 regardless of credit history" or "loans up to £100,000 for ANY purpose", but what about the small print?

If you check out many of these ads you will normally find a small disclaimer (usually buried at the bottom of the page) with the words "your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it". This is a good indicator that despite the sales pitch in the main advertisement, this company is looking to sell you a secured loan, so what is a secured loan exactly?

A secured loan, as the name suggests, is a loan secured against an asset, 99.9999% of the time this will be the home you currently live in. When your home is used as security for any borrowing a solicitor will be involved somewhere along the way to apply a legal charge on the property. This is applied to the property deeds and is a matter of public record ( this is to stop individuals having multiple charges on a single property, generally speaking only 2 charges are allowed legally, the first charge i.e. your mortgage and a second charge i.e. a secured loan).

This charge gives the lender additional security over and above the contracted "promise to pay" in the signed loan agreement, this additional security can allow the lender to offer loans to customers with current or historic financial problems such as IVA, bankruptcy, CCJ's or decrees. Basically as long as there is sufficient equity in the property a lender can be pretty sure they will be repaid one way or another ( i.e if you do not keep up repayments on the loan they will recover the costs by selling your property!)

The advantages of a secured loan therefore are that:

- loans can be offered even to customers with adverse credit

- rates can be cheaper due to increased security for lender

- loan amounts can be up to £100,000 if secured on property But what about disadvantages?

- you can lose your home if you fall behind with repayments!

- can take some time to organise due to legal involvement - up to 6 weeks

- will usually involve additional costs such as survey, legal fees etc though these are generally added to loan.

So, why not arrange an unsecured loan instead? Unsecured loans are much riskier for the lender ( no security) and therefore the credit history and financial circustances of the borrower become much more important, basically unless you have very good credit unsecured borrowing is not an option. However for those with no credit problems, unsecured borrowing can be a very cheap source of funds with rates around 6% APR and up to £25,000 available per loan agreement. The other main advantage is the speed of payout, i.e. the time it takes from completing loan application to actually recieving the funds in your bank account, for an unsecured loan this can be completed in a few days rather than weeks in the case of secured borrowing.

So, in summary, if you are looking to borrow £25,000 or less and have good credit, then apply for an unsecured loan at the best rate you can find online. if however, you are looking to borrow over £25,000 and/or have credit problems, then a secured loan or remortgage is the only viable option.

Further information on secured loans for UK residents can be found at FM Money, many financial topics covered including loans, mortgages, insurance, investing, property and financial news.