Published On: Tue, Jan 15th, 2019

What Is The Difference Between Secured And Unsecured Personal Loans?

Taking out a personal loan can be a great way to get what you need quicker. Regular payments can be less strenuous on your wallet compared to making a large purchase from your savings. Paying out a loan is the easiest way to build a credit rating, vital if you wish to apply for a home loan. There are many institutions that finance personal loans with varying interest rates and conditions. Offering competitive interest rates and second to none customer service, check out the Secured personal loans available at Newcastle Permanent Building Society. There are a few things to consider when applying for a loan. The biggest question then is, secured or unsecured? There are benefits and drawbacks to both, let’s have a look at the key differences.

Secured And Unsecured Personal Loans

Very Interesting…

When you loan money from an institution you enter an agreement to pay back the money loaned plus interest. Interest is fundamentally the cost of borrowing the money. When you deposit funds into a bank account, you are essentially loaning money to the bank. The bank pays you interest accordingly. Interest rates can fluctuate depending on complex economic factors but when it comes to paying back loans, higher interest means higher repayments. Loans can be taken as fixed rate (the interest rate is fixed for the life of the loan) or variable, in which the interest rate is re-calculated at intervals and applied to the loan repayment. A credit rating affects your borrowing power and thus interest.

Safe and Sound.

A secured loan is only offered to someone with assets. Assets used to insure against a loan default are called collateral. If the loan is unable to payed the asset can be taken and sold to cover the cost of the loan. Before the loan is financed the value of the asset is agreed upon by the customer and the lender. This prospect is far less risky to the lender and as such means lower interest rates are applied. A secured loan is good for someone with a bad credit rating as the lender can be more confident that the money will be re-payed. A secured loan usually attracts a far lower interest rate than an unsecured one. Secured loans are great for helping you purchase a new car and are easier to budget for. If unseen tragedies strike the borrower, they are protected from further debt as their loan can be taken care of.

No Security!

If you choose an unsecured loan you are borrowing money without any collateral. This means if you default (fail to make payments against the loan) the bank cannot take possession of your things automatically as payment; it also means you could spiral deeper into debt. An unsecured loan is riskier to the lender and as such will usually have a higher interest rate. Unsecured loans are quicker to finance and are most suitable for older second-hand cars or smaller loans. A common example of an unsecured loan is a credit card.

Choosing a loan to suit your needs shouldn’t be a hassle. If you are looking to purchase a new or late model car a secured loan is a pretty safe bet. A secured loan can help build your credit rating and increase your borrowing power. An unsecured loan can be a fast and easy way to get to your goal quicker and is an excellent way to build your credit score…just don’t miss a payment! Choosing a lender should be easy too. If you like the sound of an Australian lender with a community focussed approach, have a chat to one the friendly staff at Newcastle Permanent Building Society for more information on secured and unsecured loans.