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Secured & Unsecured Loans

In this weird and wonderful modern world we live in, most of us will need to borrow money at some point in our lives. Whether it’s to buy a house or car, to go travelling, or to cover costs for an expensive injury, some of us will need to get a loan from a bank. So it’s worth knowing what types of loans are out there.


What’s a secured loan?

A secured loan is a loan that is backed up by an asset. The most obvious example is a mortgage on a property, which is backed up by the value of the property itself. Put simply, if you get a secured home loan from a lender and you default on the repayments, the lender can repossess your property and sell it, then use that money to pay back your loan. The same thing can happen with a car loan or any other secured loan that covers a personal asset.

What’s an unsecured loan?

Unsecured loans aren’t tied to your assets, so even if you fail to make your repayments, the bank isn’t entitled to seize your asset(s) to pay back your loan. For this reason, unsecured loans are offered at a higher interest rate. Applicants often need to have a good credit rating and lenders aren’t as willing to lend a lot of money when the loan is unsecured.

So why would anyone get a secured loan?

Generally, people get secured loans because they need money (like, for a mortgage for a house or a car loan). Another benefit of secured loans is that they are attainable for people with lower credit ratings. Basically, banks are more inclined to give out secured loans because they’re backed by the borrower’s assets.

Whether your loan is secured or unsecured, it’s important to be realistic about how much money you can actually pay back and how regularly you can make repayments. Just because you’re eligible for a loan, doesn’t necessarily mean that you should borrow as much money as you can. Be smart about it. The thing about loans is that you’ve got to pay them back…

This information is intended to be general in nature and should not be relied upon for personal financial use.
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