Image from Picserver
First of all, secured loans. Often called “homeowner loans”, these are backed by the equity in your home. The amount you’re able to borrow through secured loans, along with the interest rate and term, all depend on your equity and your personal circumstances. One big advantage is that compared to unsecured loans, you’ll be able to borrow a much larger amount. They’re also easier to qualify for if you have a shaky credit history, as they’re secured against your property. Furthermore, the repayment periods are typically longer, and made up of fixed monthly payments. This will make it easier to form a payment plan. There’s one main, glaring drawback of secured loans. If you fail to keep up with the payments, then you could risk losing your home! It’s important to have a solid plan for repayment if you’re going to take out a secured loan. There’s usually many terms and conditions tied to secured loans as well. These can take you by surprise if you don’t read all the fine print from the beginning. Make sure you understand any early repayment charges and other extra fees.
Image from Flickr
Next, unsecured loans. These are widely marketed as a cheap, easy way to get the money you need. While this is true in a way, it’s not without its drawbacks. There’s a lot more flexibility with unsecured loans. You’ll usually have a lot more choice in how long you take to repay them. Most borrowers repay unsecured loans over a course of one to five years. Some lenders even offer “payment holidays.” This is typically a period of a few months right at the start of the term, where you’re not required to pay anything. This flexibility sounds fantastic on the surface, I know.
However, there are a few downsides to consider. With unsecured loans, you’ll only get a favourable rate if you’re planning to pay it back over three to five years. This makes it a terrible choice for people looking to borrow over a short period of time. If you’re looking for a short-term loan, then an unsecured loan will probably mean a much higher rate of interest than with a secured one. Interest rates can also be pretty steep if you’re looking to borrow a small amount. Finally, credit ratings factor heavily in unsecured loans. If you have a poor credit rating at the moment, it’s probably best to choose a secured loan instead. There you have the benefits and drawbacks of secured and unsecured loans. No one likes borrowing money. However, if your hands are tied, it’s important to take out a loan that will work for you.
Disclaimer: The idea written in this guest post is solely by the author not mine