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Weighing Your Loan Options - Secured Or Unsecure

Apr 10, 2008
For many borrowers, finding a personal loan can be a complicated and frustrating process. There are just so many different elements to consider when wading through the dozens of loan offers.

Not only will have to determine what type of loan you will need from among several specific types since most may be geared towards particular financial circumstances or to meet certain criteria. Finding a solid starting point can be difficult. Of course, there is at least one reasonable place to start. You could decide whether you want to apply for a secured loan or an unsecured loan.

Although there are definitely technical details, special features, and some legal differences involved with each individual loan agreement, your decision still comes down to the choice between secured or unsecured personal loans.

Of course, you wonder why this is an important choice. Perhaps, the single most important answer has to do with how it will affect your pocket book over the course of time. The type of loan you choose will determine how much you will have to repay on that loan. Also, as far as secured loans are concerned, the added element of collateral such as a house, a car, or property, increases the importance of this issue even further still.

In order to give you a better picture of what the differences between secured and unsecured loans are it will be helpful to elaborate on what each one is and provide some common examples.

Today, the most common form of loan used by consumers and borrowers is the unsecured loan. These types of loans are obtained without supplying collateral. As a result, they are typically smaller loans (although this is not always true). Some examples of unsecured loans include bank notes, credit cards, and student loans.

Unsecured loans have higher interest rates than their collateral-based counterparts to compensate for the risk that the lender takes. Another result is that these loans may be harder to qualify for because lenders will focus more attention on the borrower's credit rating and quality of their credit history. Unsecured loans can be problematic for those who get behind on the payments since you end up paying on the interest instead of the principal, which can become an endless cycle of debt.

Secured loans, on the other hand, are becoming more popular because they offer more long-term benefits. These types of loans are called secured loans because some for of collateral is supplied by the borrower to provide security for the lender in the event of default or nonpayment. The interest rates on secured loans are much smaller than those of many unsecured loans. Borrowers can negotiate the length of repayment terms, interest rates, delay payments, and generally have more flexibility, financially speaking, than they would have with an unsecured loan.

Home equity loans, second mortgages, home equity credit lines, and debt consolidation loans are all examples of secured loans. Another important aspect of these types of loans is the fact that borrowers with lousy credit can still have a chance of loan approval since the quality of collateral will be examined as well as credit rating.

It is entirely up to you to weigh these options and make the final decision. The key is to keep the advantages in view and determine which loan type offers the most advantages to you, as a borrower. That is what it comes down to in the end.
About the Author
Joe Kenny writes for Glitec.org, offering UK loans, visit them today for personal loans or for US residents, Rebuild for some of best loans on the web.
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