Personal Loans – Secured Or Unsecured ?


secured-unscured-loans-6986969One of the biggest questions borrowers ask themselves when applying for a personal loan is whether it should be secured or unsecured.

Personal loans are a great way to get access to funds for virtually anything from home renovations to a holiday. But like other types of loans, such as housing loans and cash loans, there are a lot of different options available. The good thing about personal loans is they are available to virtually anyone – provided you meet all of the lending criteria – and are quick and easy to access. One of the biggest questions borrowers ask themselves when applying for a personal loan is whether it should be secured or unsecured. It can be confusing, so here is a guide to help you understand the difference and make an informed choice.

Secured loans

These types of loans require the lender to use collateral to secure the funds. It acts as loan security (for the lender, not the borrower) so if the loan is not serviced, the collateral can be used to recoup the credit. Any asset, such as a car, boat, caravan or house, can be used as security. Of course the risk is that if you don’t meet the repayments then your pride and joy can be lost. While this is often a last resort and can be quite a scary proposition for some potential borrowers, secured loans do have some advantages.

Firstly, using assets as collateral usually means you can borrow more. Secured loans can also include features such as flexible repayment options over different periods of time and lower interest rates than unsecured loans. It is also a good option for people with a poor credit rating.

Unsecured loans

Collateral isn’t required for these types of loans, but a good credit history is. There is more risk to the lender than secured loans so higher interest rates will apply and the amount you can borrow will be less. The biggest advantage is that you don’t need assets to have access to cash. While lenders will look more favorably upon borrowers with collateral, unsecured personal loans are still very common. It is always worthwhile checking on your own credit history before applying for a personal loan to ensure there are no nasty surprises. Your credit report is available from credit agencies – it can be free or you can pay for instant access.

What suits your situation?

When it comes to deciding between a secured and unsecured personal loan, your personal circumstances are going to be what dictates the option you take. If it is just a small amount to cover some urgent bills or repairs, a holiday or to consolidate your debts (such as short term credit you may get from a betting website to put bets on horse racing tips), then an unsecured loan is going to do just fine. But if it is major home renovations or your dream boat then a secured loan is going to give you higher borrowing power and more flexible options. Just remember to know your limits, understand what repayments you can afford and don’t over-extend yourself.

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