The difference between secured loans and unsecured loans

Published: 07th March 2006
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There are many reasons why people get loans. Perhaps they want to enjoy a once-in-a-lifetime opportunity that will never come their way again. Or perhaps they need to fix up the house to get it ready to sell. Or perhaps they need to make a financial decision to consolidate their debts in order to reduce their monthly payments and lengthen the term to pay back their loans. Whatever the reason many people are looking to loans to help them reach their financial goals.

There is nothing wrong with using loans to reach your financial goals. In fact, a loan can be an excellent tool to add to your financial portfolio because it can help you leverage your current position. But which loan is the right loan for you?

There are basically two kinds of loans. Unsecured loans and secured loans are the two kinds of loans that you have available.

Secured loans are loans in which you offer the lending institution some kind of guarantee that they will receive payment for the loan. The example of a guarantee might be some assets that you have, like your house or your car or stock certificates. Although you don't have to turn them over to the lending institution in order to get the loan, having them in your possession assures the lending institution that if you are to default on your payment they would have something to seize and sell to recover their losses.

On the other hand, an unsecured loan is a loan in which you simply use your credit rating to help you borrow money from the lending institution. People who do not have assets or do not want to provide assets as a guarantee may prefer this type of loan as an alternative.

So which one is the better loan? While every case is different, you should consider what is important to you. For many people getting a good deal on a loan means getting a low interest rate, a high amount of available loan, and a long repayment period.

If that describes you then you probably want to go with a secured loan. Why? It's simple. Lending institutions determine the amounts they're willing to lend, the interest rates they will be lending at, and how soon they want the money back based on the amount of risk they are taking to give up the money. While a person with a good credit rating may not be a big risk, the risk is still greater than with the person who has some assets to back up the loan if they are unable to pay with money.

So it may be the right one for you. A secured loan is the right option for many people because it provides a greater amount of available lending cash, a lower interest rate, and a longer term to repay.


About The Author:

Mark Lambie is the founder of Loan Source, a website for UK residents seeking secured loans. Visit our website today for a free Home Owner Loan quote and find out how much we can save you.

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