Pros and cons of secured loans
Secured loans are great if you have an asset to put up as collateral. They have lower interest rates, making repayments more affordable in the long run. They also allow you to borrow large amounts of money so you can make major purchases that will greatly impact your life. As well as having higher borrowing rates, secured loans have longer repayment terms, meaning you can spread the cost over the years.
Another benefit of a secured loan is that you may be able to take one out if you have a less-than-perfect credit score. Because your property acts as security, you have a chance of being approved for a secured loan even if you don't have the best credit history.
Having said that, if you want the best interest rates on your secured loan, you do still need a good credit score. To be eligible for this type of loan, you also need to be a homeowner.
Although you have the option to spread repayments over a long period of time, doing so may mean you pay more in the long run. Secured loans usually require a minimum repayment period of five years.
Another downside to a secured loan is the risk of asset loss. If you default on three or more payments, your lender may take action and repossess your home. Pros and cons of unsecured loans
One big benefit of an unsecured loan is the fact that you don't need to be a homeowner. You can take out a credit card or personal loan even if you rent, making unsecured loans accessible to a wide range of people. They are an excellent choice if you need to borrow a smaller amount of money. Secured loans usually require you to borrow at least £10,000. However, with an unsecured loan, you can sometimes borrow up to £25,000.
Another advantage of unsecured loans is their flexibility. You can usually decide how long you'd like your repayment period to be.
An unsecured lender offers you money based on your financial resources. This is great news if you are in a strong position and have a good credit score.
But what about unsecured loans for poor credit? A downside is that most lenders will reject your unsecured loan application
if you don't have a high credit score. Moreover, because there's no asset to hold for security, lenders see unsecured loans as a higher risk. Therefore, they charge higher interest rates which can lead to you spending more overall.