Secured vs Unsecured Loans: What’s the difference?

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your guide to bank loansWhen it comes to borrowing money, there are a number of different loan types to consider, each with their own unique terms and conditions which take into account your financial status and reliability, and ultimately determine your eligibility1 for the loan you have applied for. The flexibility of these loans are reflected in the interest rates they wish to charge, the amount you can borrow, and over what period of time you are expected to pay back the money.

Pros and cons of secured loans

If you own your own home or any other property, a secured loan can be arranged using your property as collateral. Being able to provide some form of collateral against the amount you want to borrow gives lenders the confidence that you will pay off the loan, or risk losing that collateral. Secured loans will  generally allow you to borrow an amount much higher than a loan which isn’t connected to your collateral. It’s vitally important to keep up repayments on any loan, but particularly on one which you have secured against your property. If you think you might struggle to afford payments at any time during your repayment period, then a secured loan or any other loan type is not for you. Depending on your circumstances and credit score, the flexibility offered on a secured loan arrangement can be hugely beneficial.  A secured loan will provide you with an agreed fixed repayment plan, which will allow you to manage your repayments alongside your regular outgoings.

Why are unsecured loans more expensive?

If you are not a homeowner or do not have any other property to use as collateral, an unsecured loan may be a better option for you to consider. The interest rates for unsecured loans are generally higher than secured loans, as the lender has no collateral to mitigate its loss should you miss your repayments. Your credit history is very important in order for you to qualify for an unsecured loan; this is one of the main factors that lenders will look at when deciding whether or not you can borrow from them.

References

1To find out more about your eligibility for an On Stride Loan, take a look at How it Works.

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Jordhan Briggs is a content writer and copywriter at Enova International, Inc. dedicated to providing the most informative and useful content about living a rewarding life on a budget.

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The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.