Secured Loans & Unsecured Loans – What Type of Personal Loan is Right for Me?
The world of personal loans can often be a confusing one. Phrases like ‘secured loan’, ‘unsecured loan’, and ‘loan consolidation’ are thrown around with little explanation.
With a bit of research and access to the right resources, you can make a wise and informed decision around what type of personal loan is right for you.
Here’s a list of some of the most common types of personal loans, with advantages and disadvantages listed for each.
What is a secured loan?
A secured loan is when your personal loan is ‘secured’ against possessions such as vehicles, chattels, or your home (i.e. your ‘security’). If you fail to meet the conditions of your contract that security could be repossessed by the loan provider and sold in order to recover the debt. At Instant Finance however, we do everything in our power to avoid this from happening by working with you whenever you’re faced with financial difficulty.
Secured loans include:
- Credit sales (aka hire purchase) – buy now, pay later agreements where the item/s purchased is the security.
- Personal cash loans – big ticket items like cars, motorbikes, and home theatre systems can be used to secure cash loans depending on the amount.
- Mortgages – the home itself secures the mortgage loan.
What are the advantages of a secured loan?
- Secured loans typically have lower interest rates, because there is less risk to the loan provider.
- You can often borrow more money with a secured loan, for the same reason.
- Secured loans like mortgages and home equity loans sometimes allow for tax deductions on the interest paid on the loan every year.
What are the disadvantages of a secured loan?
- If you fail to make the repayments on a secured loan, whatever has been listed as security could be at risk. For example, if your personal loan is secured against your car, and you fail to make payments, the car may be taken and sold to repay the amount owing as well as the charges incurred from repossession and notification.
- Secured loans can have variable interest rates, meaning you could be paying more than you first thought if they go up.
- Repayment periods for secured loans are often longer.
What is an unsecured loan?
As the name suggests, an unsecured loan does not put any of your possessions at risk of repossession. Rather than listing your car as security, an unsecured loan is approved based on your ability to repay the loan. It’s common to have to provide information about your salary, savings, employment status and credit history in order to apply for an unsecured loan.
Unsecured loans include:
- Student loans – taken out to pay for higher education courses and costs like textbooks.
- Credit cards – just your average VISA, MasterCard, American Express etc.
- Personal loans – smaller personal cash loans often don’t require security.
- Payday loans – cash advances and short-term loans linked to the borrower’s payday.
What are the advantages of an unsecured loan?
- Even if you don’t own any valuable assets to help secure a loan, you may still be eligible for an unsecured loan.
- Your personal items aren’t at risk of being repossessed with an unsecured loan.
- It often takes far less time to get approved for an unsecured loan, than a secured loan.
What are the disadvantages of an unsecured loan?
- Due to the higher risk for loan providers, unsecured loans often come with higher interest rates.
- Unsecured loans often have a lower limit that you can borrow, due to their higher risk.
- You may be declined an unsecured loan if your credit score is low.
Instant Finance offer two other types of loans for specific purchases.
MYHome provides top quality brand name homeware through the network of Instant Finance branches. They offer no deposit finance and a range of products at competitive prices and free delivery.
Products include: washing machines, TVs, lounge suites, dining suites, fridges/freezers, furniture, mobile phones, computers, and more.
Brand names include: Samsung, Apple, Fisher & Paykel, Simpson, Panasonic, Toshiba, and more.
Have a look at their range of products here.
Easy Driver offers you the choice of hassle-free motoring with simple vehicle financing options. There’s a large range of quality second hand vehicles available at the car yard today! They offer vehicle loans with no deposit finance available, and different terms to suit your budget.
Check out their vehicle range here.
Regardless of what type of personal loan you opt for, remember it’s the ability to pay off that loan that matters most. Defaulting on any loan is likely to affect your credit score/rating making it difficult to obtain any more credit in the future.
A trustworthy lender won’t let you borrow more than you’re able to manage, and they’ll help you by stating in clear terms what’s required to service the loan. Instant Finance take pride in having offered great loans and helpful customer service for over 45 years.
For more information on personal loans, visit our FAQ.