Published on January 15th, 2015 | by Pete0
What are the pitfalls of Secured and Unsecured Loans?
As the title suggests, there are potential pitfalls that you need to be aware of when it comes to taking out either a secured or unsecured loan. Pitfalls are only a problem if you don’t spot them in advance so it’s worth taking the time to really think about what you are looking for in a loan, and find the best type of loan to suit you.
One of the mistakes many make is to take advice from people who we trust on a personal level, but might not be experts in loan advice! You wouldn’t ask your dentist how to fix your plumbing, so don’t ask your plumber how to fix your finances; even if he is your brother!
The benefits of unsecured loans
Unsecured loans are loans which have no collateral and are usually small to medium-sized loans up to about £25,000 which are repayable over a shorter term than a traditional mortgage or a secured loan might be.
Unsecured loan lenders will look at potential borrower’s credit profile, or credit search, to decide if they think they are a suitable person to lend to. If you have clean credit then this can be an extremely quick process as the regulation of unsecured loans allows for relatively few documents and requirements during the application process. This also means that if you need your money fast, an unsecured loan may be the quickest route to take so that you don’t miss out on that dream car at an unbelievable price on eBay, or the bargain holiday of a lifetime you saw advertised. Of course you are might just be looking to clear off Out-of-control credit card debt. The flexibility of unsecured loans and the lack of a guarantee to the lender means that generally the interest rate you will pay will be slightly higher than secured borrowing.
What if I have bad credit?
Because unsecured loans focus on your credit profile and you don’t have collateral, it can sometimes be difficult to get an unsecured loan. Here is a great article on rebuilding your credit. If you have a friend or family member who does have a good credit profile, they may be able to guarantee the loan for you. Andrew, a financial adviser says “a guarantor can help you by effectively lending you a good credit history and backing up your application. You can visit sites like ukhomeandpersonalloans.co.uk for loans with guarantor options, to see if the guarantor loan is suitable for you even if you do have bad credit, or no credit history at all.”
What about secured loans?
Secured loans, as the name implies, have security, which means that the lender can be safe in the knowledge that even if you don’t pay your loan they have some collateral. This means that the lenders can generally offer lower interest rates and larger sums of money as they see the loan as much lower risk to them. If you’re a homeowner this may be the route to go down, however, it’s worth bearing in mind that most secured loan lenders will need to do a valuation of your property to know what they’re lending against is worth what you think it is, and that a secured loan will generally take longer to process than an unsecured loan.
its worth as much as you think it is, and the application process will generally take longer than an unsecured loan.