Secured loans are sometimes referred to as ‘second mortgages’, as they’re secured against your home. This means that if you can’t meet your repayments, your home could be repossessed.

This additional security for the lender is why secured loans can be easier and cheaper to get than other types of loans. You may also be able to borrow a larger amount or borrow over a longer period compared to other loans. It’s really important that you think carefully before taking out one of these loans as the consequences of not paying are severe.

While secured loans come with more risk, there are some benefits that attract borrowers. The extra security for lenders can lead to better loan terms and higher amounts. For example:

As these loans are secured against your home, lenders are often more confident loaning money as there’s less of a risk they’ll lose money. Secured loans are often easier to get approved if you have no credit, or bad credit history.

For the same reasons, lenders may be prepared to lend higher amounts as secured loans. It can be tricky to borrow more than £25,000 on a personal loan, but with secured loans you could borrow up to £100,000 or even higher.

You can often stretch your loan out over a longer period, which can make your monthly repayments more affordable. Personal loans usually only last for a maximum of seven years.

Bear in mind that most secured loans are on a variable rate, so you need to be prepared for the possibility of rate increases when checking the affordability.

A personal loan is sometimes known as an unsecured loan. As the name suggests, this means it’s not secured against an asset like your home. You usually borrow a fixed amount that is repaid over monthly instalments for a set period of time – known as the term of the loan.

You can often pay off a personal loan before the end of the term – you may even be entitled to a refund of interest if that’s the case.

Personal loans are often taken out for a shorter period of time and used for things like cars, home improvements, weddings, holidays or even debt consolidation purposes.

Personal loans may be an option if you need to borrow money for an unexpected expense, spread out a large purchase or consolidate debt. Personal loans work differently to secured loans – here are some advantages to consider:

One big benefit of a personal loan is that it’s not linked to collateral – like your house. While there are still consequences for missing your loan payments they’re arguably less severe.

Rather, lenders approve borrowers based on proof of employment, earnings and credit score.

There are few restrictions on loan purpose – lenders can use personal loans for a variety of different scenarios. You can often secure a loan within a week.

Personal loans may be a suitable option for emergency finance, as some lenders offer same-day funding if eligible. Even so, taking on a personal loan needs careful consideration and should not be a hasty decision.

Personal loans can have lower APRs and interest rates in comparison to credit cards – particularly if borrowers have high incomes and low credit scores.

Personal loans and secured loans each have their pros and cons.

Personal loans are unsecured and usually smaller, while secured loans are backed against your home and allow larger borrowing amounts.