Types of borrowing

Loans typically fall into one of two camps: secured or unsecured. Secured loans use your property as security, while unsecured loans usually involve a simple promise that you'll repay the money, without putting your home at risk if you default on the loan. Deciding which one is right for you will depend on your circumstances. It's also possible to have both types of loans at the same time.   

What’s the difference between secured and unsecured loans?

Secured and unsecured loans are two very different things. You do need to understand which type you're applying for before you make a loan application – and as you approach or enter retirement, it's very important to understand the implications of securing a loan against your property.

What is a secured loan, exactly?

A secured loan is a credit agreement that's backed by the equity in your property. These loans are only available to people who own their own homes, and can be used to borrow any amount from about £5,000 to £125,000. The amount you borrow, how long you borrow the money for, and the interest rate you pay, will all depend on your circumstances and how much equity you have.

What is an unsecured loan, exactly?

As long as your credit score is good enough, you should be able to get an unsecured loan. You don’t need to be a homeowner to apply. Personal loans can be used to borrow anything from around £1,000 to £25,000, but they’re usually considered for loans up to about £10,000. When you borrow money it’s important to factor in how much interest you will have to pay on top of what you borrow.

Are there any alternatives to these loans?

Yes, usually there are. If you only want to borrow a small amount, a 0% credit card could be a better option – or you could even remortgage if the rates are lower than the secured loan rates. However, it's important not to overextend yourself in any situation, and remember that there may be fees involved.

What can I do to find out more?

Although a professional adviser may not be able to help you approach a lender, he or she will be in a position to offer you advice about your financial situation. And there are other ways to secure money – such as accessing savings, or using a product like equity release. Start by going to thepfs.org or unbiased.co.uk, where you'll find an impartial listing of advisers in your local area.