Unsecured loans vs secure loans
Taking out a loan is a massive personal finance decision that shouldn’t be taken lightly. If you decide to take out a loan then make sure you compare the different types of loan available to make sure you are making the right decision, whatever you decide may have a big impact on your future.
When trying to identify the sort of loan you want, you should identify all of the options that are available to you. One of these options may be whether you choose a secured or unsecured loan, but do you know the difference?
Secured loans explained
When a loan is said to be secured, this means that it’s secured against something you own, or ‘your assets.’ If you need a large sum of money, then a secured loan might be the conventional way. However, if you have any problems repaying the loan amount, then the lender can take from you the “asset” that you secured the loan against. Now, whatever you chose to secure your loan against, whether it is your car or your home, the lender can then sell it to get the loan amount back that you failed to pay.
So what are the advantages of a secured loan?
- Secured loans can normally be obtained at a great interest rate
- You normally have greater flexibility with a secured loan than with a unsecured loan
- You are normally able to secure more money than you would with an unsecured loan
- The money can be easier to pay back due to long repayment periods
- Due to the asset you have secured your loan against, it’s normally quite easy to get approved for a secured loan
What are the disadvantages of a secured loan?
- If you take out a long repayment period then you may be in debt for a long time
- You risk losing the asset you secured the loan against if you fail to pay it back
- You may not be able to take out a secured loan unless you have some collateral to secure the loan against
Unsecured loans explained
Unsecured loans are becoming harder to come by because of the current economic situation. But in simple terms if a loan is stated as unsecured, then you don’t have to secure any assets against the amount you want to take out.
So what are the advantages of an unsecured loan?
- There is no risk of losing any asset by taking an unsecured loan
- You don’t have to have any collateral to be accepted for an unsecured loan
- Shorter repayment periods for the loan is great if you want to borrow a small amount of money
- Unsecured loans can be very flexible
So what are the disadvantages of an unsecured loan?
- As you don’t secure any assets against the loan, the interest rates are normally a lot higher
- You can’t borrow as much as you could with a secured loan
- Criteria for lending for an unsecured loan tends to be a lot tougher