Unsecured loans tend to cost more than a home loan, and so it is often assumed that a home loan should be used instead of an unsecured loan whenever possible.  This is not always the case and there are often good reasons for using an unsecured loan rather than a home loan, or a loan that is secured on a house.

The reason why unsecured loans are as a rule more expensive than home loans is that a home loan is secured against a house.  This means two things to a lender.  The first is that a borrower will tend to prioritise home loan repayments above other forms of debt, and sometimes above other forms of spending.  This will mean that home loans are far less likely to default. 

If the home loan where to default then the lender would be able to take the house and sell it and be repaid first from the house.  This means that instead of the long process of making a person bankrupt and dividing the assets among the various lenders then there would be a faster and more certain repayment.

However what is a great advantage to a lender is a big disadvantage to a borrower.  An unsecured debt is likely to be more sympathetically treated if the borrower gets in financial trouble than one that is secured on a home loan.  This is because an unsecured debt is far harder to recover if the lender takes a hostile attitude.  So while very few borrower aim to be in a position that they can not repay their loans, many of them do end up in this position as a matter of course.

Another advantage to an unsecured loan is obvious, the borrower is in far less danger of losing their house than if they had a secured loan. 

There is also the fact that while a borrower may have access to a secured loan through a family member, perhaps their parents, they can not apply for it themselves.  An unsecured loan allows for a lot more independence, which can be worth the extra cost.

It is also possible to keep account with separate loans of where the lending is unsecured.  In this way the savings or the extra income that comes from a purchase can more easily be put against the loan repayments rather than endlessly extending the home loans, perhaps to beyond retirement.