If you are planning to borrow some money then you will likely need to decide on whether to settle for a secured or unsecured loan. Both types of loans are quite different and therefore you need to understand the conditions regarding each type of loan before you can decide on the best alternative to opt for. If you are facing some challenges in deciding whether to opt for a secured or unsecured loan, then this guide supplied by nowloan.co.uk should help you make the best decision on the two alternatives.
A secured loan is a type of loan that is linked to collateral that assures the lender that you will repay the borrowed amount within the stated duration and the lender can have possession of the collateral if you default making the payments. Usually, a home or a car is the common type of collateral required by most lenders. Some common examples of secured loans include car loans and mortgages.
An unsecured loan, on the other hand, does not require any collateral protection. With such loans, therefore, the lender cannot possess your property. Some of the common unsecured loans include student loans and personal loans.
Major differences between secured and unsecured loans
- The major difference between secured and unsecured loans is the collateral concept. With the secured loan the lender will require a valuable asset to access the loan. The collateral is meant to act as a security to ensure that the lender gets payment for the borrowed money. This is different from the unsecured loans where the lender does not require any form of collateral to access the loan.
- Secured loans tend to charge lower interest rates as compared to the higher interest rates charged in the unsecured loans. This is based on the essence that the unsecured loans are considered riskier as no security that is attached to the borrowed amount.
- Secured loans usually have longer repayment periods as compared to the unsecured loans. This based on the fact that the unsecured loans are riskier and therefore the lender states a shorter repayment period to increase the chances of getting a total repayment of the borrowed money.
- Secured loans are easier to obtain and they are therefore desirable to many borrowers due to the favourable conditions required in obtaining the loan. The lender may only require you to state a valuable item that may be used as collateral to secure the borrowed amount. However, with an unsecured loan, there may be complex procedures required to obtain the loan. The lender may take you through a series of steps to determine whether you are fit for such a loan and your assurance of repaying the loan.
The secured loans are always preferred over the unsecured loans not just because they are easy to obtain but they are more favourable than the unsecured loans. The repayment periods are longer, borrowing limits are quite higher and the interest rates are less as compared to the unsecured loans. Most lenders will also prefer giving secured loans as they are more secure as compared to the unsecured loans.
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