When you’re borrowing money, you will need to make a decision about what kind of loan you most want to take out. Usually, this begins with a decision between a secured, and an unsecured loan. According to Emu Loans, Secured and unsecured loans are both very different creations, and knowing the difference between the options that are available to you is essential at making sure that you protect yourself, get access to the finance that you need, and reduce your chances of suffering from serious debt concerns.
While secured loans are often used for bigger purchase like homes and cars, unsecured loans can be a little less drastic, and smaller in nature. This is why they are often referred to as personal loans, because you can use them for a range of different reasons, without facing severe consequences.
What is a Secured Loan?
Let’s begin our exploration into secured and unsecured loans by asking what is a secured loan? A secured loan may sometimes be referred to as a homeowner loan, as one of the most common types of a secured loan is a mortgage, or a loan that is taken out against the security of your home. Secured loans work by being linked to the property of the person who wants to borrow the money. In other words, they’re only available to people who have something that they can offer in return for the loan. Although it’s not a sale, and you don’t give the loan lender the property that you’re putting up as security just to access the money that you need. By engaging in a secured loan, you agree that when you fail to make repayments, your loan provider can take your property to pay the money owed.
The amount that you can borrow and the duration hat you can borrow money for is often much higher in a secured loan than in an unsecured or personal loan. This is because the amount of risk that the company is taking on with a secured loan is far lower, and they have something to fall back on if it all goes wrong. Of course, the amount that you can borrow, and the interest rate that you are offered will often depend on the amount of equity you have to offer as a security, and your personal circumstances, such as your credit history.
Secured loans are often available for much larger sums than personal loans, and if you have a less than ideal credit history you can still usually get a secured loan, and often will be able to manage this much easier than getting an unsecured loan. The repayment periods of secured loans are also longer, but you will need to keep up repayments or you could lose your home. Additionally, you should check for other issues such as fees on early repayments when determining whether a secured loan is right for you.
What is an Unsecured Loan
An unsecured loan, or a personal loan as it is better known to some people, is available to borrowers who have some manner of a good credit score. Usually, if your credit history is poor, you will struggle to get an unsecured loan, or you’ll find that the loans that are offered to you come with very high interest rates because the people that are offering you the loan cannot fully trust that you will repay the money that you borrow. You don’t have to be a homeowner to apply for an unsecured loan, and the money you get can be used for anything that you like.
Unsecured personal loans are usually available to a wide number of different people, and they can offer flexibility and versatility on how long you have to repay them, though most people will not take longer than five years to pay back an unsecured loan. Some loans will also give you the option of a payment holiday where you don’t have to make any repayments during the start of the agreement.
Usually, the best rates for unsecured loans are given to those who have good credit histories. Additionally, you might find that you get a particularly good deal if you’re happy to make repayments between a period of three to five years. This means that if you want a short term loan you’ll pay more interest.
The problems with unsecured loans is that the interest charges can be high in smaller accounts, and the top deals are really only available to people who have good credit. If you’ve struggled with black marks on your credit score in the past, then you might not be able to get an unsecured loan at all. Alternatively, you might be offered a loan, but only if you are happy to pay very high interest rates that could make it difficult for you to afford the repayments you need to make.