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When talking about secured and unsecured loans, you often associate the two parties, the borrower and the lender. Of course, there are pros and cons for both sides in secured and unsecured loans, and throughout this article, we will go through each of these aspects. But before we can talk about that, we first must understand what a secured loan is.
What is a secured loan?
A secured loan is available to homeowners/mortgage holders, it works as a regular loan, but if you cannot repay the loan, the lender can sell your house, to get the money they were originally owed. So now we must ask ourselves, who of the two parties does the loan benefit? This, in fact, doesn’t benefit the homeowner, but rather the lender, and this can sway some owners, due to them not knowing what the word means, but a secured loan means the lender gets security, and not you.
So how does it benefit the lender? It benefits them as now they can take your house from you.
As we have now overlooked some standard advantages and disadvantages of this particular type of loan for both homeowner and lender, we will now look at the pros and cons of taking a secured loan in more detail.
Pros of taking a secured loan
So, why would any person decide to take a guaranteed loan in the first place? After reading the actions the lender can do, would they still want the loan? The answer is yes!
One of the many reasons is that secured loans are much easier to get. Compared to unsecured loans which are harder to get due to them being cheaper to those with decent credit scores, and as interest rates are high, it can prove to be problematic with those who have poor credit scores. Secured lending allows people with poor credit scores to loan money, and this is a benefit as the loan gives the lenders security, which makes them more inclined to lend you money.
Another reason is that the size of the loan can be substantially large compared to that of an unsecured loan. And this is because it secured against your home/jewellery/car….and, so the lender has some form of collateral if you do not repay the loan. This can also be seen as a con, for borrowers that cannot repay.
So far, we explored the likelihood of getting the loan, and the amount you can receive from the loan. Now we will talk about the period you have when borrowing, and repay.
Secured loans allow you to borrow for a longer period compared to that of an unsecured loan. And borrowing for such a long time is useful as it can cancel out the costs of setting up, which is usually very high. However this is also a con, despite the fact that it does reduce the repayment of the loan (monthly), the amount of interest does increase, and this keeps adding up, making the total compensation even higher.
Cons of taking a secured loan
In the pro section of taking a guaranteed loan, we have covered some cons. But we will overlook them in this section as well as go over some new ones.
So far, you must understand that when taking a secured loan, it is usually secured on your home, but it can also be secured on your car(s) or jewellery or anything that has a decent price tag. But most of the time, it secured on your home. This is because it allows the lender to be more inclined to loan the money to you, and if not repaid, the lender can repossess your home.
We briefly covered the aspects of interest rates and how it affects the total repayment when taking a secured loan over a long period. But if you didn’t know already, there are two types of interest rates, variable and fixed, and if you’re not sure which rate you took, and it is variable, your payments towards your loan may increase, so what we would suggest is that you must know if the loan has a variable or fixed rate.
So we have now discussed the pros and cons of taking a secured loans, if your still unsure whether you should take a secured and unsecured loan, please do not hesitate to call us, and our Experts will help you in choosing the best deal you can get when wanting a loan.
If you decide to go for a secured loan, and you deduce whether it is the most appropriate choice for you, given your financial situation at the time. Before you do anything, meet your lender, remember the offers they provide you, then you should meet more lenders, and once you accumulate all the deals that are suitable for you, you can then pick off one by one, until you find the best offer for yourself. To speed this process up for you, I would recommend you find a comparison website or something similar, and this will overall help you speed up the comparison as well as find a wide range of deals.