Unsecured Loans vs Secured Loans

Unsecured Loans vs Secured Loans. Pros and Cons about Secured Loans and Unsecured Loans.

        

Deciding whether or not to take out a loan can prove to be a difficult decision, however once you decide this there are also several other decisions to be made, the biggest of which is whether to secure your loan through the process of linking it to an asset of value; more often than not your home.

Banks and other finance providersare willing to offer varying levels of finance dependent on the level you risk they feel it poses to them, more often than not they will offer higher levels of borrowing to applicants who pose less risk, finance providers are particularly willing to lend when your borrowing is backed by a valuable asset; this is known as a Secured Loan. This article will look at the main advantages and disadvantages of both secured and unsecured loans and help you work out the best option for your circumstances.

What are significant differences between secured and unsecured loans?

A Secured Loan is any form of borrowing where the loan provider demands the applicant provide a guarantee that all of the repayments on the loan will be met; this is usually in the form of your home or another property. In most cases this guarantee is made on the applicants home, which can be repossessed if failure to meet repayments occurs: therefore it is usually only homeowners who are eligible to apply for Secured Loans. There are two types of Secured Loans, know as first charge or second charge loans. The term first charge loan refers to any Secured Loan where the homeowner owns the property outright and has no outstanding mortgage repayments, with a first charge loan borrowing amounts tend to be higher and interest rates are generally lower. This is because should you default on the payments for your Secured Loan your loan provider will be first in the line of creditors you owe, this is not the case with a second charge loan.

In the case of second charge loans, the borrower still has a balance left to pay on their mortgage, this means should repayments not be kept up, the mortgage provider has first dibs on any outstanding costs, in cases where there is a large outstanding mortgage balance it can mean there are not sufficient funds for the Secured Loan provider to recoup costs. It is down to this increased risk that second charge loans are the more expensive for of Secured Loan and often have greater restrictions and lower available borrowing amounts than first charge loans. It is important to know which type of Secured loan you are eligible to apply for in order to filter search results and save time.

An unsecured loan can prove to be an easy and inexpensive avenue of borrowing funds, whether you want to purchase a new vehicle or plan the vacation you’d always wished for. Unsecured loans enable you do this without using your home to guarantee your repayments. Unsecured loans are designed to bemalleable option of borrowing sums between £1,000 and £25,000 over a time frameof one to five years. They offer lower borrowing amounts, higher interest rates and shorter term times than Secured Loans due to the greater level of risk they pose.

Which has the greatest chance of approval...secured or unsecured loans?

Due to the current economic recession, unsecured loans are becoming few and far between, due to their high-risk nature. As a result finance providers have become more selective about who they will lend to, in particular applicants with a less than desirable credit history may find it near to impossible to take out a loan without providing an asset as guarantee of repayment. As a result, Secured Loans are becoming a more viable option, especially if you want to borrow a large sum of money over a long period of time. However, for those wanting to borrow smaller amounts over shorter periods, an unsecured borrowing arrangement may well prove the right choice.

How much will they lend me?

In general unsecured personal loans are available from a few thousand rand to 25,000 rand, over varying loan term times, how much you are permitted to borrow and over what length of time will all be impacted by factors such as; income, credit history and existing financial commitments. Your loan provider will determine how much risk you pose to their investment, those imposing the lowest risk with benefit from access to greater borrowing amounts, longer term times and lower interest rates; on the other hand those posing the greatest risk with have access to smaller borrowing amounts, shorter term times and higher interest rates.

With Secured Loans, the amount available generally ranges from 3,000 rand to 100,000 rand although some lenders will consider lending up to 250,000 rand. Similarly to unsecured loans, the amount borrowed is repaid monthly over a term agreed at the start of your borrowing, which will usually range between three and 25 years.However, it is vital to keep up the repayments as all lending secured on your property could result in the loss of your home if you fall behind.

Which is most suitable for me?

If you are self-employed, have recently changed jobs or have a less-than-spotless credit history, you may find that you have no choice but to opt for a Secured Loan; as long as you own your own property. However chosing between a secured and unsecured loan will ultimately come down to how much you want to borrow, if you only need a few thousand rand an unsecured loan could be the best option and means your home is not at risk, however for anything over 10,000 rand a Secured Loan will probably work out being your best bet. Use online comparison site to help filter the option down to ones that match your criteria, this will make finding the best deal easier.

Are there any alternatives?

If you are only looking to borrow a small amount, say a few thousand pounds, a credit card could be a good option. There are a number of deals offering interest free periods on balance transfers and purchases, making borrowing on a credit card potentially cheaper than a loan.

If you are a homeowner and are looking to borrow more than a couple of thousand pounds, another option is to remortgage and release some of the equity from your house. Mortgage rates are on average considerably lower than loan rates, however there are pitfalls: increasing your mortgage can come with hefty admin costs and if your current mortgage provider is unwilling to allow you to remortgage, you may have to change your mortgage provider entirely which can prove quite costly.

        


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