Secured and Unsecured Loan Pricing

miket056

I looked at some loan offers on Clearscore, a credit rating platform. Unsecured loans of 25,000 for 3 years were considerably cheaper (about 3%) than secured (8%) which seems counter-intuitive. Can someone explain, please?

[Deleted User]

People who seek secured loans are generally higher risk. The secured loans will also have easier acceptance, due to their nature. 

And with the current state of the economy, lenders may doubt whether the equity is going to remain sufficient.

foxy-stoat

miket056 said:

I looked at some loan offers on Clearscore, a credit rating platform. Unsecured loans of 25,000 for 3 years were considerably cheaper (about 3%) than secured (8%) which seems counter-intuitive. Can someone explain, please?

Clearscore are not a lender, so any percentage rates quoted should be assumed to be marketing rates and not what you will end up with.

miket056

Thank you for your replies but I remain confused!
I would have thought that secured borrowers, whatever their risk profile, must be a lower risk because of the collateral, though I take your point about equity. However, I have home equity which is over 5x the loan amount (declared on the form), so I don't think it applies. Nor do I imagine that marketing can differ from actual rates by 5%!.

[Deleted User]

They're higher risk because they need to put their house at stake.  Lower risk customers don't and will take an unsecured loan.  The collateral is there to offset losses - it's doesn't change the risk of default.

Actual rates could be around 30 percentage points higher or more on loans from the representative rate.  And that's without going into sub prime territory.  Those rates are reasonably rare, but 5 percentage points added on for a downsell (outside of the 51% obviously) would be very common.

foxy-stoat

miket056 said:

Thank you for your replies but I remain confused!
I would have thought that secured borrowers, whatever their risk profile, must be a lower risk because of the collateral, though I take your point about equity. However, I have home equity which is over 5x the loan amount (declared on the form), so I don't think it applies. Nor do I imagine that marketing can differ from actual rates by 5%!.

Excellent news then, apply and let us know how you get on.