Secured vs Unsecured Loans

There may be times in life when you need a loan, whether it’s to buy a car, purchase a home, or make improvements to your property.

Secured and unsecured loans are both types of personal loans that offer different ways of borrowing money.

They vary in terms of what’s required to be approved, how much you can borrow, repayment timelines, and what happens if you don’t make your repayments.

TSB have a loan calculator to help you estimate how much you could borrow and what your monthly repayments might be. Please note that this calculator is only for unsecured loans, as standalone secured loans are only available to mortgage customers.

We've put together some helpful tips to guide you in choosing the right option for you.

What is a Secured Loan?

You might be looking to buy your first home or move to a new one and need a loan to make it happen. A mortgage is a type of secured loan because it’s backed by the property itself.

• This means that if you don’t pay it back or you default on your payments, the lender can seize the asset and use it to settle your loan
• Due to the fact that secured loans are secured against an asset, they allow you to borrow larger amounts of money
• For example, a mortgage is a type of secured loan that is secured against a house or property
• As they are often connected to larger amounts of money, secured loans have a longer repayment timeline
• Interest rates tend to be a bit lower because the loan is tied to an asset, which offers more financial security for the lender

What is an Unsecured Loan?

Are you thinking doing home improvements or buying a car? Since these can be expensive, you might consider applying for an unsecured loan, which is approved based on your financial situation (your income and your credit score) and isn’t tied to any external assets.

This might be a medium to large loan that helps you buy a car, pay for a wedding, or go on a once-in-a-lifetime holiday.

It’s important to be aware that if you don't make all of your loan payments on time, it will impact your credit score and your future borrowing ability.

• Typically, unsecured loans have a shorter repayment period and higher interest rates compared to secured loans
• The amount you can borrow will vary, based on your financial situation and the type of loans that your financial provider offers
• Generally, unsecured loans are available in a range between £300 and £25,000. This could be more if you’re an existing customer

Find out more on our loans page.

What is the difference between them?

The specific terms of a secured or unsecured loan will depend on your financial provider and your circumstances, but we’ve broken down the most typical traits and differences here.

	Secured	Unsecured
Criteria for acceptance	Asset to secure loan against along with credit profile	Credit profile
Interest	Typically lower, sometimes with variable options	Typically higher
Repayment period	Longer	Shorter
Loan amount	Larger sums upwards of £25,000	Between £300 and £25,000
Risks	Debt collectors can recover assets if needed. Additionally, we have the option to use the set-off process, allowing us to transfer funds from other TSB accounts to cover outstanding balances.	Impact to credit score and future borrowing ability

Understanding interest rates and repayment terms

Secured and unsecured loans will both have dedicated interest rates and repayment terms. The way this looks will vary, depending on the type of loan you have and your financial profile.

Interest rates

Most personal loans come with a fixed interest rate that's agreed upon upfront and stays the same throughout the loan term. Mortgages, on the other hand, usually have interest rates that are set for a specific period and need to be reviewed regularly.

Secured loans have lower interest rates compared to unsecured loans because the loan is secured against an asset.  This means the provider can claim the asset if you default on your loan. When you apply for a secured loan, your interest rate will factor in your income, your credit score, your existing debt, and whether you have dependents.

Unsecured loans have higher interest rates compared to secured loans, as lending is based on your credit profile and your income. Some lenders may also ask what you intend to use the loan for and use this information to determine your eligibility.

Repayment terms

Repayment terms and timelines will also vary based on the specifics of your loan.

Typically, secured loans will have a long-term, structured repayment plan that you’ll agree with the loan provider.

Bear in mind that missed or late payments may result in a fee. If you consistently miss your repayments, the provider can seize the asset that’s attached to your loan. A repayment holiday gives you a short break from your monthly loan repayments, which could help with unexpected costs, like your boiler needing to be repaired.

Unsecured loans will also have a set repayment plan across a shorter timespan, where you’ll need to make scheduled, minimum payments. Some unsecured borrowing, such as an overdraft, may simply accrue interest until you repay the full amount.

If you fail to make repayments on your unsecured loan, it can impact your credit score and future borrowing.

Whether you’re considering a secured or unsecured loan, it’s important to fully understand the repayment terms. From there, you can plan your finances and build your budget to suit the repayment timeline and amount. Doing this will help you keep on top of your finances and repay your debt on time.

To get a clearer idea of loan affordability and repayment terms, check out our loan calculator.

Which type of loan is right for you?

Choosing between a secured or unsecured loan will depend on your circumstances, lifestyle, and what you want to use the loan for.

If you’re looking to buy a property, you’ll need a secured loan (a mortgage). However, if you need funds to add an extension onto your home or make renovations, you might be choosing between a secured home equity loan or an unsecured loan.

A secured loan can be useful if you need to borrow a large sum as it may come with a lower interest rate and have a longer repayment timeline. However, your assets will be at risk if you fail to make your repayments.

Unsecured loans can be useful for when you need to borrow money but don’t have an asset that you can or want to secure your loan against. Interest rates may be higher and the repayment period will be shorter, so it’s important to make sure you are confident that you can afford to take on this level of debt.

Whether you’re a TSB customer or not, our Money Confidence Experts are specially trained to help you manage your money. Get in touch today.

In a nutshell

Secured and unsecured loans are useful financial tools that can help you reach your short- and long-term goals. A secured loan is connected to your existing assets and your credit profile, while an unsecured loan is based solely on your credit history.

Before you begin applying for a personal loan, it’s important to understand the differences, terms, and conditions, to make sure you’re choosing an option that makes sense for your lifestyle and circumstances.

If a personal loan isn’t the right option for you at this time, you might want to consider other forms of borrowing.

Our Money Confidence Experts are always happy to answer questions and help you find a financial solution for your situation. Reach out today to set up a chat.

18+ and UK resident only (21+ if applying online for some loans). Lending is subject to approval and actual rate offered will depend on our assessment of your personal circumstances Your home may be repossessed if you do not keep up repayments on your mortgage