When we think about personal finance and loans, we often find ourselves sitting with very difficult decisions to make.
Taking a loan is not something that should be taken lightly; you should always think hard about what you are doing, because you cannot change your mind once it is approved. These are the differences between an unsecured loan and a secured loan.
A secured loan is a loan taken against something you own and is more than likely the most conventional way of getting a large amount of money, but you could end up losing the asset you used to secure the loan, if you do not make the payments. This would normally be your home or your car, which they can then sell to recover their losses.
What are the advantages of taking a secured loan?
- You are usually allowed to loan more than you would with an unsecured loan.
- Taking out a secured loan is a good way to get a large amount of money at an affordable rate.
- You are allowed to take the loan out over a longer period of time than you would be able to with an unsecured loan, which means that it is easier for you to pay back the money.
- It is easier to get a secured loan if you have bad credit, but you may end up paying more interest.
What are the disadvantages of taking a secured loan?
- Taking out this type of loan may lead to you being in debt for a longer period of time.
- You could end up losing your home if you do not pay the payments.
- If you do not have assets to use as security, you might not be eligible for one.
An unsecured loan does not require you to have anything to use as security. Finding one of these types of loans with a good/low interest rate is very difficult because of the economic state. If you do find one, the payment periods are always much shorter than with a secured loan and the interest is also a lot higher.
What are the advantages of taking an unsecured loan?
- You avoid the risk of losing your assets.
- You do not need to have large assets to secure this type of loan.
- It is a good choice if you want to loan small amounts at a time.
- Unsecured loans can be tailored for the specific individual.
What are the disadvantages of taking an unsecured loan?
- These types of loans have shorter re-payment periods.