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There are many decisions you will have to make when choosing the right loan for you, whether that be a car loan, home loan, business loan, personal loan, or otherwise. One of these decisions will be choosing between a secured or an unsecured loan.
A secured loan is linked to an asset that is used as collateral, usually a car or property. If you default on the loan, the lender will take possession of the asset in order to pay off the remainder of the loan. Car and home loans are often types of secured loans.
Often secured loans are the only way to borrow a large sum of money from a lender, as the lender will have a guarantee that the money will be returned. A lender is more likely to agree to a loan if you agree to use an asset as collateral.
An unsecured loan is not protected by an asset, which means if you fail to make repayments on the loan, the lender cannot repossess your property or car. Credit cards and personal loans are examples of loans that would usually be unsecured.
To be approved for an unsecured loan, the lender must believe that you have the ability to pay it back in the agreed upon time frame. This will be determined by your credit rating, income, and capital.
Depending on your circumstance, it is likely that you will be better suited to one loan over the other. If you are trying to secure a large amount of money, for example, a mortgage, you are likely to be best suited to a secured loan. A secured loan is also better suited to those with a poor credit rating, and is easier to obtain as a whole. A secured loan is also likely to have lower interest rates, and higher borrowing limits, so is likely to be the best option for many people.
Obtaining an unsecured loan will mean that the lender will have the right to your assets should you default on the loan, giving you more security in that regard. Lenders can, however, take legal action against you if you default on the loan, and can petition to take money from your salary. You will have to have a good credit score to obtain an unsecured loan, however, and you may be charged higher interest rates, as the lender is taking a higher risk.
Before making a decision about what kind of loan is best for you, be sure to do your own research, and consult a professional before signing on the dotted line!
Beyond Debt is a trading name of DCS Group Aust Pty Ltd. Australian Credit License: 382607. RDAA Number: 1126. PO Box 3074 Newstead, QLD, 4006.
DCS Group operates under a Limited Liability scheme approved under Professional Standards Legislation
