When you’re borrowing money, you’ll likely need to decide on a secured loan vs an unsecured loan, and understanding the differences between the two is an important step in achieving financial literacy, and can have a long-term effect on your financial health.

A secured loan requires collateral or protection by an asset for example a car or a home.  With a secured loan, the lender can take possession of your collateral if the loan is not repaid during the agreed period. Secured loans are the most common way to borrow large amounts of money. The lender only offers a large sum with a promise that it will be repaid. This loan is sometimes referred to as homeowner loans as it is typically linked to an asset like a borrower’s property.

An unsecured loan however is not protected by any collateral. Also known as personal loans, are the most popular type of loan. This type of loan tends to be offered to people with a decent or high credit score because lenders or banks lend according to the amount of risk a borrower possesses as it shows how reliable you are for repayment. You will be judged based on the five Cs of credit:

  • Character (credit score, employment history)
  • Capacity (income and current debt)
  • Capital (money in savings or investment accounts)
  • Collateral (home/car)
  • Conditions (terms of loan)

In simple terms, secured loans require collateral and unsecured loans do not. Below we will look at the advantages and disadvantages of both secured and unsecured loans.

Secured loans

Pros:

  • Does not require good credit score
  • Can usually borrow large amounts with a low-interest rate
  • Able to spread payments over a longer period
  • Can use repayments to build up credit score

Cons:

  • Need to be a homeowner with equity
  • Need a high credit score to access best interest rates
  • Borrowing more leads to financial difficulty


Unsecured loans

Pros:

  • No risk to personal property
  • Application process is simpler

Cons:

  • Loan amounts may be smaller
  • Rates and payments are higher

Which is right for you?

There are several factors to decide on a secured vs unsecured loan. Usually, a secured loan is easier to get, as there is a lesser risk to the lender. For example, if you have a poor credit history or rebuilding your credit, lenders will be more likely to consider you for a secured loan rather than an unsecured loan. Secured loans tend to also have lower interest rates compared to unsecured ones. This means, if you can qualify for one, is usually a smarter financial management decision vs. an unsecured loan. A secured loan will enable you to gain access to more money because it tends to offer higher borrowing limits. The amount you can borrow, the duration of the loan, and the interest rate you are offered, will all depend on your circumstances and credit rating.

If you still can’t make up your mind or need assistance in which type of loan to apply for, don’t stress! You can look for help from licensed private money lending companies such as Finsource Credit, providing professional financial advice from its expert loan advisors who are ready to answer your questions 24/7. Offering different types of loans including clean loans, property loans & 2 in 1 financing. For more information, call today to learn more about our services.

contact us: 03-2712 4333

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Finsource Credit: www.finsourcecredit.com