Secured vs. Unsecured Loans
If you're new to the lending industry, one of the first things you need to know is that there are two main types of loans to choose from. They are the secured and unsecured loans. One type may be better for specific situations while the other type may be ideal for different circumstances. To know which one is best for your case, it's important to compare the two side by side.
Starting off with secured loans, this type of options are backed by an asset typically a house or a car. This means that the risks are lower for lenders hence approval is easier given of course that you meet all requirements.
Loan terms and amounts are also more flexible. With a homeowner loan, for instance, you can borrow up to £250,000 depending on the equity of the property, your income and credit rating. As for the repayment term, you can set for 3 years or longer up to 25 years.
Because the loan is secured, there is a possibility of losing your asset in case of nonpayment or default. To avoid repossession, you'll just need to be consistent with your monthly dues.
Unsecured loans, as the name suggests, are loans without any security needed which means loan amount and terms are less flexible. It is ideal for people with bad credit or those who do not own any asset to serve as collateral.
Interest rates for unsecured loans may also be higher since lenders do not have collateral to repossess in case of nonpayment.