The world of finance is filled with an array of financial products; you may have seen them advertised on television or your local bank talking about them when discussing your options. A popular choice when seeking capital is often the personal loan.
It may look as simple as walking into your bank and getting one, but other than the sometimes confusing application process, there are two options when it comes to applying for a loan; a secured or unsecured loan.
Each of these choices comes with its own advantages and disadvantages, but before applying for either, you should know what they are and what they entail.
– Secured loans
If a loan is secured, it means that it is backed by an asset, i.e. a house or car. This serves as collateral in the event of a default payment, or being unable to meet the terms agreed when the loan was taken out. If the loan cannot be paid, the lender will take possession of the asset and sell it to cover the losses. While the lender takes the property in the event of a default, you may still owe money to the lender from the loan.
However, this should not deter people from applying for a secured loan. As the lender knows they have your assets as backup, this will ensure there is no uncertainty about getting the money back. Another advantage is the cheaper interest rates, compared to an unsecured loan. This also means that you can borrow anything from £3,000 to £50,000 and some lenders can provide capital up to £100,000.
A secured loan is ideal for people who have had problems with their credit history, as the loan is secured against an asset; this provides security for the lender in making sure the loan is paid back in full and on time.
– Unsecured loan
As the name suggests, this loan is not secured against any property or asset. Credit cards are considered a form of unsecured finance as well as education loans. As there is no security, lenders take a huge risk when it comes to providing this loan, so the interest rates are considerably higher. In this situation, the lender will rely on your contractual obligation to pay the loan back.
A disadvantage to this is that the amount you can borrow is sometimes much less with shorter repayment periods. As it doesn’t require any property to be given up as security, this can be seen as an advantage for the unsecured loan as lenders are not entitled to repossess property in the event of a default, but they can pursue this through court and can get collection agencies involved if required.
There is no easy answer to give when choosing a secured or unsecured loan. It boils down to your personal circumstances and which one would benefit your situation more. When it comes to applying for a loan, secured or unsecured, you should shop around to find the best deals when it comes to interest rates. Online financial support can help provide you with products that suit your conditions, regardless of your credit history and can provide support and advice.
Bill Turner is a free-lance writer and family man. He likes travelling to the Carribean with his family in the winter months.