While the average UK household is borrowing more today, rising unsecured lending has become an order of great debate. At one place the central bank has indicated that unsecured lending is required to be discouraged by the main street lenders, more and more households struggling to meet their ends are resorting to FinTech players for more convenient and affordable cash gap loans.
With stagnant wages and rising inflation, is it recommended to borrow unsecured loans at first place? Can households (already struggling to meet the end) could be held responsible for borrowing unsecured loan when they need loans for their food and shelter? Let’s figure out which is the best borrowing channel for you: Do you need a homeowner loan or a personal loan?
Homeowner loans as the name suggests are extended against your residential property on a mortgage. It is extended against the home equity you own; thus also called as home equity loans. The loan is extended as an instalment loan on a fixed interest rate. Being a secured loan, there are fewer hassles and you get more flexibility to negotiate a cheaper rate.
There is no limitation on the use of the fund and you can borrow for a longer term according to your credit requirements. Most people opt for the second charge against their home when they seek urgent funds for some emergency purchases such as sudden boiler replacement or furniture financing. Likewise, it is also common to apply for homeowner loans for home improvement or debt consolidation.
Whatever be your requirement, you can conveniently search out a match using professional broking advice. However there is one cache, as you have pledged your home equity, nonpayment of loan can risk the ownership of your home. The lender can take you to the court to settle the account.
Personal loans, on the other hand, are unsecured loans. These are essentially all-purpose loans like homeowner loan and mostly used by people to fund a lot of different expenses. As there is no security attached to the loan amount, a lender would typically charge you higher interest rate.
Typically people apply for personal loans when they do not want to attach any kind of liability in case of nonpayment or when they want to use loan amount flexibly. The rate of interest is certainly lower than credit card loan. Also being a homeowner, you may find it more convenient to get approved for a personal loan.
Making the Choice
The choice of loan should always depend on the purpose and profile of the borrower. Being a homeowner it is always more convenient and affordable to apply for a home equity loan. However, in case, you need funds for a risky business investment you may prefer using a business loan or small personal loan. When the return is risky you would not want to risk the home equity.
Nevertheless, it is always advisable to apply for a loan with a robust repayment back up. You must never use debt as a casual tool to gap fill your financial lapse.
If the decision to make a choice is intimidating, do not forget to seek a free consultation from an FCA authorised loan broker and make an informed decision indeed!