August 22, 2010

Personal Finance – Secured vs Unsecured Loans

At one time or another many of us have had to make tough financial decisions, and taking out a loan can be one of the most difficult decisions to make. You have to try and decide what it is you want from your loan, how much it is you need to borrow and what sort of repayment plan your looking for before making such a decision.

When you decide to push forward with a loan, you then have to decide whether or not you wish to secure the loan against your assets. Doing so has both its advantages and disadvantages which I will try and address in this article; it’s Secured VS Unsecured loans.

The Basics

A secured loan is a loan that is secured against something you own, e.g. your home or your car.

An unsecured loan isn’t secured against any assets you own but as a result of this, the risk is greater for the lender.

The Current Situation

As a result of the current financial climate, being approved for a loan is becoming harder, lenders are more selective about whom they choose to qualify. The current market has meant that cheaper unsecured loans are becoming harder to come by and subsequently secured loans are becoming a more feasible option for lenders.

If you are looking to borrow a large amount over a long period of time then a secured loan could be the way to go, however, if you are looking to borrow a smaller amount over a shorter period then an unsecured loan could prove the right choice for you; it all depends on your personal circumstances.

Advantages / Disadvantages

Secured Loans: Advantages:
  • You will receive a better, more affordable rate than an unsecured loan
  • Your repayment period will be longer offering you greater flexibility with your payments
  • Easier to borrow larger amounts of money than an unsecured loan
Disadvantages:
  • You have to use your assets as collateral against your loan, failure to meet the regular repayments of the loan could result in the lender repossessing your assets
  • As the repayment periods are normally longer than unsecured, this may mean you are in debt for a long time
Unsecured Loans: Advantages
  • You can be eligible for one without having any substantial assets;
  • You avoid the risk of loosing your assets;
  • They are a better option for someone who wishes to only borrow a small amount.
Disadvantages:
  • You would normally have to pay the amount back over a shorter period of time
  • As you don’t have to place an asset as collateral, the risk for the lender is greater and therefore, the interest payments are normally higher than a secured loan
  • It is tougher to be approved for an unsecured loan than it would be for a secured loan

It’s Your Decision

When you have read the pros and cons of each type of loan, you should try and identify which type of loan would best suit you. Taking out a loan is such a tough decision, you should be 100% sure of all the details before you finally make a choice; you may have to live with decision for a very long time. Both unsecured and secured loans have their advantages, they both suit a certain persons needs, compare as many of them as you can and decide which best fits your future.

24 comments:

Premium Finance said...

Amazing read. Interesting take on finances. This is a very important aspect of peoples' lives nowadays.

Cameron said...

I think, before availing loan services, you need to assess your needs first. With that, you can define which loan services fit to you. In fact, some prefer to take advantage of offshore loans for privacy purposes and security to their account.

Secured Loans said...

Great read, secured loans certainly offer much more flexibility in the long run.

Moshe said...

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donnamoore01 said...

The interest rate will be lower on a secured loan than on a comparable unsecured loan. A secured loan may also offer more flexible repayment periods.
so I prefer mostly secured loans...

Bad Credit Account said...

Thanks for sharing the information,One of the major difference between secured and unsecured loan is collateral.In a secured loan,you put up collateral against the debt but In unsecured loan are not leveraged with collateral.

Brandan said...

awesome
Agreed Cameron as u Said :"assess your needs first. "
Dan only one can suggest u better . after all that we Must take care about the Repayments and the Interest Rates ...
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brandan said...

Thanks for Clear description ...
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John said...
This comment has been removed by the author.
John said...

Thanks for sharing something about secured and unsecured loans. Now that I know that the paying period is shorter than when it is a secured loan, I'd push for an unsecured financing loan. Besides, it's only for a small business. I don't need a huge amount of money to start this one.

Richa Sehgal said...

Depending on the financial situation one has to decide whether to take secured or unsecured loans .I think secured loans are peace of mind and provide better flexibility .!

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Anonymous said...

well it depends on the circumstance whether to apply for unsecured or secured loan its the need answer for secured or unsecured loan form my view to be more at tension less take unsecured loan ..
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Personal finance loans said...

Before going for a quick personal loan, make sure that you have browsed all the available solutions for your cash problem before deciding which loan you would go for.

Secured Loan said...

Personal loans are a unique retail loans product offered by a number of banks to cater to distinct and diverse needs of the customers. Secured and unsecured loans are provided by banks to its esteemed customers. The main purpose of such a loan is to meet any kind of personal need or expense. A number of personal loans like marriage loans, consumer durable loans, festival loans are increasingly becoming popular. Easy loans are provided at attractive rate of interest for widening the existing customer base. 

serured loan said...

Secured Loans make the best of your existing resources and are seen as the most cost effective major expense loan and are the most popular, Many people use Secured Loans for many different reasons such as: Weddings, Education, Home Improvements, Purchase of Vehicles and Debt Consolidation.

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Wilson O'Doyle said...

When I took out some Personal loans. I was given a fixed interest rate. This really helped me when I was paying back the loan. I was able to easily budget my money during the pay back period. I didn't have to worry about the interest changing from month to month

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