Why can`t tenants get secured loans?
Secured loans, in general, come with lower interest rates than unsecured loans. In other words, lenders will charge less to loan the same amount of money for the same amount of time.
However, secured loans are not available to everyone - and the reason for that is in the name...
Secured loans - what does 'secured` actually mean?
There`s a reason secured loans come with a lower interest rate. They`re secured against something valuable - normally the borrower`s home - so the lender knows they`re guaranteed to get their money back.
If the borrower doesn`t repay the secured loan, the lender can take them to court and force them to sell that property to repay the secured loan. (In most cases, though, lenders see this as a last resort, as there are other ways of getting their money back which are better for everyone involved.)
Why can`t tenants get secured loans?
Simply because they don`t own property to secure the loan against. Tenants can, however, get unsecured loans - as the name says, they`re not secured against any property, so they`re available to tenants.
Sometimes, a homeowner will get an unsecured loan - if they don`t want to secure the loan against their house, for example, or if they already owe too much on it (in the form of their mortgage and / or existing secured loans).
Secured loans v. unsecured loans - any other differences?
Secured loans can be larger. Lenders tend to offer larger loans to people who secure them against property. If someone owns a £150,000 house and owes £50,000 on their mortgage, that means they own £100,000 of 'equity` (the portion of the value that really belongs to them, not the mortgage provider). Even when house prices are going down, lenders would probably feel comfortable giving most people in that position a secured loan worth at least £50,000 - as long as they can prove that they can afford the repayments.
As for unsecured loans: the lender will look at the individual`s credit rating and see how well they`ve managed their finances in the past. Based on that, they`ll figure out how much they`ll lend them (if anything) and how much they`ll charge for it.
Secured loans can run for longer. Secured loans are often designed to be repaid more slowly than unsecured loans. Even so, some unsecured loans are designed to be repaid over quite a long period. In some cases, it can be ten years or more.
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