Secured Loans, or unsecured loans, that is the question

There are two main types of personal loans available to consumers in the UK: secured loans and unsecured loans. So knowing what each kind of loan product is intended for can help narrow down your search for some cash.

Secured loans

Secured loans are usually for larger amounts, several thousand pounds or more, with repayments made over longer periods of time, generally over a fixed number of years.

A mortgage is the most well known example of a secured loan, whereby the debt is secured against the property you are buying or already own. Other examples of secured loans are hire purchase agreements, where the credit is secured against an item you are purchasing, or some debt consolidation loans are also tied to your home or other assets.

Secured loans are an affordable way to borrow big sums of cash, although you will probably pay a lot of interest in the long run, because of the large number of repayments, plus there is serious risk involved because falling into prolonged arrears means the lender is entitled to the asset or assets linked to the debt. In the case of a mortgage this could mean losing your home if you experience ongoing problems in keeping up payments.

Unsecured loans

Unsecured loans aren’t tied to any assets and the lender essentially trusts you to settle the debt as agreed with a contract. This usually means the amounts of money you can borrow tend to be lower with unsecured loans and you may pay a higher rate of interest compared to a secured loan.

Traditional unsecured loans would typically be used to fund home improvements, buy a car, purchase expensive household items or pay for a holiday. It’s a way of the spreading the cost over several years, although you will pay for the pleasure thanks to interest charged, usually measured with APR, or annual percentage rate.

Borrowing with Wonga.com

Loans now come in all shapes and sizes and Wonga.com offers a new kind of unsecured loan designed for occasional use, when you need to solve an urgent, short term cash flow problem. Unsecured short term loans can be designed to suit you and Wonga’s online service let’s you choose the exact amount of cash required, up to £1,000, before determining the cost by deciding how many days you need it for, up to a month.

The idea is that you only borrow what you need for as long as you need it for, settling the debt quickly and getting on with life. Even early repayment is fee-free and you only pay for the time you have the cash.  This type of unsecured loan is not designed to fund luxuries or service existing debt, but comes in handy for unexpected expenses such as bills, emergency repairs or an unbelievable bargain where you stand to make savings by acting there and then.

To qualify you need to be aged 18 or over, be employed, have a UK bank account and debit card, plus a mobile phone. Application is entirely online and only takes a few minutes. There is a credit check, but Wonga only seeks to assess whether you can comfortably afford repayment, not judge your reliability over several years.