What’s the difference between an unsecured loan and secured loan?
When it comes to personal loans, there are two options available, a secured and unsecured loan.
And choosing the right option for your unique situation can be difficult. You have to consider many things like assets, cash flow and financial goals. Learn more about the main differences between a secured and unsecured personal loan to help you decide which one suits you best.
What’s the difference between a secured and unsecured loan?
Secured Personal Loan
A secured loan means you provide an acceptable asset as security against the money or loan.
This means if you are not able to repay the loan, the lender will be able to sell the assets to pay towards your loan.
Unsecured Personal Loan
An unsecured loan is a loan that does not require any asset or security for the debt. This means the interest rate for an unsecured loan is usually higher compared to a secured loan since it has a higher risk for the lender.
What is a secured loan?
A secured personal loan usually:
Allows you to borrow money using collateral like home and car.
This type of loan usually takes a longer period of approval as there is a security to consider.
It offers a lower interest rate.
It has higher borrowing amount compared to unsecured loans.
What is an unsecured loan?
An unsecured personal loan usually:
Often based on your financial capability instead of physical assets.
Offers smaller borrowing amounts compared to secured loan.
May have a quicker time of approval, as there is no collateral for security to consider.
It may have a bigger risk for the lender, as there are no assets or collateral for security
May have a higher interest rate compared to secured loans because of its high risk
What assets can be used for secured personal loan?
The most common assets used as security for personal loans are cars or any registered vehicle, but the assets that can be accepted for secured loan may depend on the lender.
Can I use a mobile phone, jewellery or other personal assets as security for a loan?
In short, no.
Unfortunately, these types of items do not have an official register that a lender can legally list their interest against.
So these items and many other personal assets such as handbags, TV’s, ipads, X-box’s, shoes and fishing equipment are not acceptable to be used as security for a loan.
Can you get bad credit unsecured loans and bad credit secured loans?
Yes you can, depending on your level of bad credit. Your first step should be to understand what your credit rating is, and what is listed on your credit report.
Whether it is a secured or unsecured personal loan, it is important that you evaluate your situation and make sure you understand the pros and cons of each loan before you take out a personal loan. You may also make a clear plan for how to repay your debt.