There are many times in life where someone might need to borrow money whether this is a sudden unexpected large cost like a household repair, buying a car or purchasing a home. Consumer lending reached over £21 billion in September 2020, so it is not uncommon for people to take out loans, but it is important that you find the right type of loan for your particular needs and this will be either a secured or unsecured loan. Read on to find out all that you need to know so that you can make the right decision.
A secured loan is one that is secured against an asset, such as the borrower’s home or car. You will often get better deals and be able to borrow more money when you opt for a secured loan as there is less risk to the lender as they know that they can reclaim the value of the loan if you default. Of course, this is a risk for you which is why it is always so important to make sure that you can afford repayments otherwise you could lose your home or whatever is securing the loan.
As you might expect, an unsecured loan is one that is not secured by any asset and it is the most common type of loan with the total value of unsecured loans reaching a record £208 billion in 2019. These loans are harder to qualify for and you will need to have a good credit score to show that you are a reliable borrower, but there is the obvious advantage that you do not need to put up a personal asset as collateral. Although, you are likely to face additional charges that will impact your credit rating if you default on payments. Typically, you can borrow up to around £25,000 but you will get better interest rates for around £15,000.
Making a Decision
The best type of loan will depend on your circumstances and there are a few key aspects that you will need to consider to make the right decision. You need to think about how much money you need to borrow, how much you can afford to repay, if the need for a loan is worth risking collateral and what your eligibility is. If you struggle to qualify for an unsecured loan due to a bad credit rating, you can take steps to improve your score.
Loans can be an important part of adult life and used in many different situations, but it is always important to weigh up your options and to work out whether secured or unsecured is the best option for you. Hopefully, this post will help you to make the right decision and find a suitable loan option for your needs.