Unsecured loans are loans that are not secured against any assets. An unsecured loan is often provided by a bank, of a value up to about $25,000, or from a general lender, whereas a secured loan is usually provided by a bank. A secured loan differs from an unsecured loan in that it is secured against assets, such as your property. When you fail to pay a secured loan, the bank can satisfy that loan by foreclosing on your property – and if you fail to make the payments, you could lose your home. On the other hand, you can usually get more money if the loan is secured against an asset, and if you have the means to pay the loan back, it’s an excellent way to secure extra funds. Learn more about unsecured loans and secured loans with this simple guide.
Unsecured loans with a low interest rate are now harder to come by than loans with higher interest rates or secured loans with a low interest rate. Why? Banks want to make absolutely sure that they’ll get their money back – the banking crisis and the fact that thousands of people are in debt because of wanton lending over the last ten years means that they are more cautious than ever before and so most of the time, the only people that banks will lend unsecured loans to are those with excellent credit.
You can get unsecured loans of between $3,000 and $25,000, depending on your credit and your income. Most lenders will be flexible and will let you make overpayments and will also allow you to pay the loan back early. In some cases, you will have up to 25 years to pay the loan back. With unsecured loans, you don’t have to worry about losing your home if you fail to make your repayments, although if you do fail to pay the loan back on time, it will have a major effect on your credit score and could seriously affect your ability to borrow in the future.
Loans that are secured against a property with a mortgage in place are known as second charges, whilst loans that are secured against a property that is owned outright with the mortgage completely paid off are known as first charges. Secured loans used to be seen as a last resort, as people didn’t really want to have to secure a loan against their property – and secured loans might also carry a higher interest rate. On the other hand, people can usually get between $3,000 and $100,000 for a secured loan – as it is secured against an asset – and the loan can be paid off over a period of up to 25 years. If you’re self-employed, if your credit score is poor, if you’ve recently changed jobs or if you’ve recently moved house, a secured loan might well be your only option.
Come back soon to learn more about all of the different types of loan on offer.