When people look for a loan, the majority look for a personal one. These are loans from building societies, specialist companies and banks and range from £1000 to £25000 with repayments being spread over a maximum of 7 years. The more you borrow, the lower the interest rate (Typically, largest and best personal loans start from 0.75% above the Bank of England's base rate.)
However, as the loan amount increases, so does the perceived risk for the lender. With out security, the lender will generally only consider people with excellent credit scores for the larger amounts. If you are a home owner then its often easier to get a loan for this reason. If you can't meet repayments then the lender could take your home, in this way the lender is assured that you will pay back the loan and can usually offer a lower interest rate.
Of course that's not the only reason secured loans exist. Being secured against your home adds some benefits. Firstly, you can borrow the money over a longer time – up to 30 years. Secondly, you can borrow more than £25,000. In some cases you can borrow up to 125% LTV – this is difference between the balance of your mortgage and the value of your home.
At the moment Secured loans are not regulated in the same way as mortgages but because the vast majority of the lenders and brokers in the UK also sell payment protection insurance, secured loans are regulated by the FSA. Personal loans up to £25,000 are regulated by the Office of Fair Trading under the Consumer Credit Act 2004.
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