Loans
Loans can be used for a variety of purposes, such as buying a car, home improvement, paying for a wedding or debt consolidation. There are two types of loans that you can get, a secured loan or an unsecured loan.
Definitions:
A secured loan means that the lender takes a charge on your property as security against you defaulting on the loan. An unsecured loan is where a lender does not take a charge against your property, and the loan decision is made solely on your income, employment status and credit history.
Benefits:
The benefit of an secured loan is that on a like for like basis, the lender will offer you a lower rate of interest, and thus reduce the cost of borrowing. The only reason they do this is because they know that should you default, they have the loan secured against your property and thus they should be able to recover their money.
For unsecured loans, the interest rate is usually higher than on secured loans, so they are more expensive. However, should you default on an unsecured loan, the lender cannot make you sell your property, as they have not used it as security for their loan.
Useful information:
A secured loan is sometimes referred to as a 2nd mortgage, this is because, if your property already has a conventional mortgage, that lender will take what is known as a “first legal charge” over the property. This means that the lender has an interest in the property that supercedes any other. Any subsequent borrowing against the property has to take their charge after the first charge, giving it the name “2nd mortgage”.
There is no limit to the number of charges there can be against a property, it is entirely at the discretion of each subsequent lender. The previous lenders are protected because their charges will not be adversely affected by the new charge.