Personal Loans: Secured or unsecured
If you are thinking about taking out a personal loan it's a good idea to get familiar with the types of loans on offer, especially the difference between secured and unsecured loans. Lending institutions offer both but which one is best for you?
Secured personal loans
Regardless of how much you want to borrow, you should ensure that you know the difference between a secured loan and an unsecured one so that you can make an informed decision as to which will suit your needs best. Secured loans are often used to get funds for home equity and renovations, business loans and other major purchases like a car, boat or caravan.
Secured loans require you to surrender something of value to the lending institution which will become the collateral until the loan has been repaid.
Such collateral could be:
- Property deeds
- A car or boat
- Items of jewellery
In the event that you fail to repay the loan, the lending institution is entitled to sell your security item to recoup their money and if the sale doesn't cover the full amount of the loan, you will have lost your property and still owe money!
Information about unsecured personal loans
With an unsecured loan you are not required to surrender anything for the purpose of collateral. While this means that you will not lose anything other than your credit rating if you fail to pay, it should be noted that the interest rates on unsecured loans are usually much higher than those generated by a secured loan. As a result, unsecured personal loans are much harder to get as the lending institution will not have anything of value to hold as security against the loan.
Unsecured loans are what people apply for when they need money for student loans, small business loans, and extra funds to carry out minor household repairs and for small personal loans.
The main rule though, whether you are looking at a taking out a secured or unsecured loan is to make sure that you don't borrow more than you can afford to repay.