Unsecured vs. Secured Loans

18 May 2012 17:00 - Crage Campbell

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Unsecured vs. Secured Loans

A secured loan is where you are required to put up a significant asset against the loan which is used as collateral. Secured loans and are effectively loans which are ‘secured’ against an asset which is usually your home or a car. With a secured loan you will find that the interest rates are likely to be lower. This is because there is less risk involved for the lender because they have the security of your asset. As there is less risk for the lender it also means that you are more likely to qualify and you will be able to borrow more money over a longer period of time than with an unsecured loan. However, this does mean there is more risk for you the borrower. Should you default on payments you risk having your asset seized meaning if you don’t pay what you owe on time you risk having your home repossessed.

An unsecured loan is a loan that is not secured against an asset so the borrower does not have to put forward any collateral. Unsecured loans are therefore, considered to be a lot safer than secured loans. While this means less risk for you, for the lender there is more risk involved because you are putting up an asset against the loan. As a result you will find that the interest rates on unsecured loans can be considerably higher. You will also find that because of this you will not be able to borrow as much as you would with a secured loan or for as long. If you have a poor credit rating then this will also stand against you because you are seen as more of a risk but there are lenders on the market who do lend to people with bad credit so take the time to compare the market. Unsecured loans can be very varied and flexible with the exact amount you can borrow depending on the type of unsecured loan you choose and the lender you decide on.

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