How different is a secured loan from unsecured loan?
We all have probably been there – a situation whereby we need a loan facility for one reason or the other. And like me, chances are that you do not have a circle of deep pocketed friends who can write you a check of say 20000 pounds to sort your financial problems and repay back later when you get on your footing. On the contrary, you would be lucky to get someone who would advance even 5000 pounds based on a gentleman agreement. In any case, people are weary of advancing money to friends owing to the stress that come with getting the money back.
That said, after weighing all your options, you resort to borrowing money from a high street bank to meet the financial need that you have. As you will agree with me, deciding to go for a loan is one thing and getting approved for it something else altogether especially when you have a “not so perfect” credit score. In light of this, you find yourself staring into nothing late at night wondering whether to go for a secured loan or an unsecured loan. You’ve asked around from friends which one to go for and they probably have given you conflicting answers. So what is really the difference between a secured and an unsecured loan? Under what circumstances should you go for either of the two?
As the name suggests, this is a type of loan that is secured using an asset. Owing to the fact that most people who apply for this type of loan are homeowners, secured loans are also known in many quarters as homeowner loans. In other words, in order for you to apply for a secured loan, you need to have some sort of asset to pledge as security. Lenders easily advance secured loans because it’s less risky to them and chances of losing their money almost nil. In other words, should the borrower be unable to repay the loan advanced, the lender can always dispose of the collateral and recoup their money. Secured loans are essential especially when you need a large sum of money for a long period of time or you have credit problems. They also attract low interest rates compared to unsecured loans.
Unsecured loans are the exact opposite of secured loans. In other words, you do not need to have collateral in order to avail an unsecured loan. This type of loan is essential for individuals who need a small amount of money for a short period of time. Unsecured loans are usually repayable within one year. Examples of unsecured loans include payday loans, credit card or instalment loans.
In a nutshell, when seeking for credit facilities, you need to decide whether you should go for secured or unsecured loans. Of course, your choice will be informed by your credit score, the amount of money you need or the period of repayment.