Taking control / October 22nd 2020
You may have seen the words ‘secured’ and ‘unsecured’ when shopping for a loan, but what do they mean? Learn the main differences between secured and unsecured loans below!
A secured loan is one that is connected to a piece of collateral; something valuable like a car or a home. With a secured loan, the lender can take possession of the collateral if you don't repay the loan as you have agreed. An unsecured loan is not protected by any collateral. This difference affects your interest rate, borrowing limit, and repayment terms.
A secured loan is normally easier to get, as there's less risk to the lender. If you have poor credit history, lenders will be more likely to consider you for a secured loan. Additionally, a secured loan will tend to have lower interest rates because the lender is taking on less financial risk. That means a secured loan, if you can qualify for one, is usually a smarter money management decision.
You can borrow larger amounts with a secured loan, because lenders are confident that they will get their money back, either from loan repayments or sale of the collateral.
An unsecured loan is a loan that’s issued and supported only by the borrower's creditworthiness, rather than by any type of collateral. Unsecured loans, are approved without the use of property or other assets as collateral. Typically, this form of finance is offered in a smaller amount than a secured loan, but is charged at a higher interest rate in order to cover the lack of collateral. This is sometimes a more appealing option to borrowers, as you aren’t committing something that you already own to cover repayment of the debt.
There are a few factors that go into deciding on a secured versus an unsecured loan. At the end of the day, which loan is best for you depends on your current financial situation, as well as numerous other factors such as which assets you can use as security (in the case of a secured lending), whether you have good or bad credit, as well as your credit score. Each of these factors should be taken into account before you make your decision, as they’ll all influence your application, the amount you can borrow, as well as the interest rate you’ll pay.
Ready to get a loan? If you decide to go for a secured loan, we lend on cars, furniture and property. There must be no money owing on your security. If a balance remains, we can sometimes pay this out and build the cost into your personal loan. However, if you don’t have security for the loan, it may be that your situation allows us to lend you an unsecured loan up to the value of $1500. Otherwise, you can arrange a Guarantor. The Guarantor follows the same procedure as if they were borrowing the money and must have suitable security.