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Secured loans vs unsecured loans

Secured Loans vs. Unsecured Loans

If you are new to borrowing money, the process of taking out loans and the numerous options on offer can be confusing. Although there are many different reasons why people take out loans - to buy a new car, for home improvements, to develop their career or to finance a lavish wedding - there really are only two types you need to understand. They are:

A secured loan is a loan whereby the lender requires the borrower to put up a valuable asset to be used as security or collateral to protect against defaults in repayments.

On the contrary, when taking out an unsecured loan, the lender does not require any collateral. However, you must have a strong credit history to be granted an unsecured loan.

Information on secured loans

When taking out a secured loan, you can put up any valuable asset to be used as collateral. Some of the more common assets which borrowers generally use as security are:

  • their home or other type of property

  • their car

  • other personal treasures such as a highly-valued piece of art or diamonds

Be extra careful if you decide to put up your home as collateral against a secured loan. Remember that if you fail to make your regular repayments by the due date, you could ultimately lose your home. Think carefully as this can be a risk that you may not want to take. As long as you and your chosen lender can agree on a valuable asset to use as collateral against the secured loan, there is no real limit to the sum of money that you can borrow, provided the loan amount does not exceed the monetary value of the collateral.

Even borrowers who are considered high risk - such as the self-employed - can obtain a secured loan as long as they have a piece of collateral to offer up as security. Compared to unsecured loans, secured loans can take a longer time to process as there are additional arrangements to be made for the collateral involved. If you need a secured loan, make sure you give yourself plenty of time to apply.

Information on unsecured loans

Most unsecured loan providers are prepared to offer you finance as long as you are gainfully employed and have a permanent address. Many lenders of unsecured loans limit their lending to no more than $15,000 to $20,000. Unsecured loans normally carry a fixed term and a fixed interest rate. Unsecured loans can normally be processed quickly - often in a few days - as there are no collateral arrangements to make.

Who offers secured and unsecured loans?

Whether you decide to choose a secured loan or an unsecured loan, you can approach any of the following organizations. These lenders will be able to listen to your needs and find a loan to suit your circumstances:

  • Online loan providers

  • Banks and credit unions

  • Specialist lenders

 Many borrowers are attracted to using the services of online loan providers because:

  • They can offer more favorable deals with lower interest rates.

  • They can give you an instant or fast decision if your secured loan application has been approved.

Some useful advice about taking out unsecured loans or secured loans

  • Do not ask to borrow more than you can afford in an unsecured loan or secured loan.

  • If possible, repay the full amount of the unsecured loan or secured loan as quickly as possible, provided early repayment does not incur a penalty charge.

  • Read and understand the full terms and conditions before agreeing to the unsecured loan or secured loan.

  • Buying appropriate insurance can give you protection against unforeseen events such as accidents, illness, or unemployment.

  • If you cannot repay, it is crucial to inform your loan lender and be honest and open about your situation.

Conclusion

The money you receive from taking out either secured loans or unsecured loans can be used to fund any type of purchase or finance any type of project including renovating your existing property, buying a holiday home, purchasing a luxury car, or going on that dream holiday.

Whichever type of loan you decide on, it is a good idea to shop around and carefully consider factors such as repayment terms, interest rates, and penalties. Researching all these details will ensure you get the best unsecured loan or secured loan available to suit your budget and lifestyle.

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