When you take out a loan, you will many decisions to make, but
one of the most fundamental, will be whether or not to opt for a
secured or an unsecured loan.
A secured loan will have a number of advantages. First of all
they are easier to get an approval for. This is because lenders
will know that their money is at less risk due to the security
offered. There is also the benefit of getting better rates and
more favourable terms. It is a known fact that the terms will be
less onerous if you offer some security. Your annual percentage
rates, which are basically the cost of the loan, will also be
lower. This can have a major effect on the amount each monthly
repayment will be. It may also mean you can pay the loan off
faster. The final major advantage of getting a secured loan is
that you will probably be able to borrow more than if it was
unsecured. This is because banks will be willing to lend you
more, but just as importantly, because the rate is lower, you
will be able to afford more.
There is a major disadvantage to all secured borrowing however.
The lender will be able to take title to your assets, usually
your home if you fail to keep up with repayments. This is a huge
risk that many borrowers simply are not willing or able to make.
Suppose you want to start a business but it is not guaranteed to
be successful. If you have a family with young children it would
be a very bad idea indeed to secure the lending for this
business over your home.
What would be far safer for you and your family would be to get
an unsecured loan. While unsecured loans may be harder to get
approval for, they are still generally available for anyone with
a regular income and good credit history. The terms may be
slightly less favourable than if you were going for a secured
loan, and the rate may be higher. This will mean you will have
to make higher repayments or over a longer period. But the major
advantage is that your house is not at the same risk. This will
allow you to try business ventures or take other risks with the
money you borrow.
One thing to always remember is that even if the loan is
unsecured, you are still liable for the full amount and if you
are made bankrupt, all your assets, including your house can be
used to satisfy your creditors.
Personal loan 101- What You Absolutely Need to Know
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