Are you thinking of borrowing money? You have two options at your disposal; secured or unsecured loans. Before you jump feet first into either of the two, there are important considerations you will need to make… which include:-
1 The amount of money you plan to borrow and for what purpose?
2 The loan tenure
3 The interest rates
4 Your current financial obligations
5 The terms and conditions of the loan and the repayment schedule
A secured type of loan is one that enables a borrower to get access to money from a lending institution with the help of a valuable item as collateral. This could be valuable jewelry, property, or automobile.
Advantages of secured loans
* Since the loan has security, the interest rate is usually lower than that of an unsecured type of loan and you will normally get access to more money.
* It can be a good way to get access to money if your application for an unsecured loan has been declined because of a not-so-good credit rating
* It is an ideal way to borrow money to finance expensive things such as home improvement projects
* You can borrow and have a long repayment term meaning you can be able to reduce the monthly remittances to an affordable figure as you will have stretched the loan over an extended period of time
Disadvantages of secured loans
* You will be putting your property on the line should you fail to repay back the loan as agreed.
* The very common reason why people today apply for secured loans is because they want to consolidate their existing unsecured loans under a single manageable debt. While the ‘new debt’ will be manageable as you will be able to spread the repayments over an extended period of time, it means that you will end up paying more in terms of interest over the long run.
It is also to be mentioned that should you opt to consolidate your debts with a secured loan, you shouldn’t use the ‘financial break’ provided by the low payments to accumulate even more debts as you will only be creating a vicious cycle.
Advantages of Unsecured loan
* Should you fail to repay back the loan as agreed, you will not have any valuable on the line for repossession.
* Borrowing money through an unsecured loan is far much cheaper compared to using overdraft facility or credit card.
Disadvantages of unsecured loans
* Should you end up repaying your loan early before the loan tenure, it is advisable to read the terms and conditions carefully because some lenders are known to charge a hefty interest of the total amount of money you would have paid as interest had you kept the loan to maturity.
* As expected, because the loan isn’t secured, you should expect to have very high interest rates than for a secured mortgage loan.