If you’re researching personal loans, you’ve probably come across the terms secured and unsecured a few times. These terms describe one of the most important differentiators between personal loans, so it’s important to wrap your head around each of them. Let’s start with the basics: what is a secured loan?
What is a secured personal loan?
A secured personal loan lets you give an asset (like a car or motorcycle) as security for repayment of your loan. This means that if you default on your loan because you can’t meet your obligations such as repaying your loan, the lender may be able to take possession of the security.
If you’re considering a secured personal loan, you’ll need to provide a few things with your loan application. Some common examples are payslips, proof of employment, proof you’ve paid utility bills, and proof you’ve been able to pay off other debts like a credit card. These will provide your lender a level of comfort that you’re a suitable candidate for a loan.
What are the benefits of a secured personal loan?
There are a number of advantages to a secured personal loan. It can potentially earn you a lower interest rate, a longer loan term, or allow you to borrow a larger loan amount.
What can I use to secure a personal loan?
There are a few common options which lenders will accept as a security on a personal loan, though what’s allowed will depend on the lender and your reason for taking out the loan. Some assets which are commonly accepted as security include cars, motorcycles and caravans.
As an example, many people take out a loan to buy a new car, so one of the most common forms of security is the car itself.
What is an unsecured personal loan?
An unsecured personal loan is a loan where you do not provide security over an asset. This type of loan is popular with people who want to borrow money to go on a holiday, buy a used car, or need to purchase several different things.
What are the benefits of an unsecured loan?
The most obvious benefit of an unsecured loan is that you won’t put any asset at risk by applying. They’re also usually simpler to apply for online and the money can usually be used more flexibly than with a secured loan which requires an asset.
What are the downsides of an unsecured loan?
Unsecured loans aren’t for everyone and have strict eligibility criteria. Unsecured personal loans usually have higher fees and interest rates than secured loans.
Personal loans from People’s Choice
If you want to learn more about personal loans, we have lots of information to answer your questions. We recommend you check out our article on how much you can borrow for a personal loan next.
If you know you’re interested in applying for a personal loan, People’s Choice has secured and unsecured loan options to compare and choose from. Otherwise, you can have a chat with us or visit us at a local branch.
This article is for information only. Any views expressed are the views of People’s Choice Credit Union solely. This information must not be relied on as a substitute for financial planning, legal, tax or other professional advice.