Loaning is a flourishing business... The credit bazaar is brimming with loan types and offers. Today, one can find an array of loan forms according to their usage - debt consolidation loans, bad credit loans, wedding loans, vacation loans, education loans, business loans, vehicle loans, homeowner loans, tenant loans and many more. Irrespective of the reason, all these loans are broadly categorised as:
Secured loans
Unsecured loans
So, how should one compare and decide which category would be most advantageous? The core difference between secured and unsecured loan is the presence and absence of collateral respectively. Other key elements that make a deal advantageous or disadvantageous are the borrower’s:
Credit history and existing financial standing
Loan requirement and preference
Please note that before you compare loans, you must have a clear idea of your requirement, and past and present financial state.
For a secured loan, the borrower needs to offer something valuable as collateral. Depending upon the value of the furnished collateral, a secured deal ensures:
High amount - as high as £75,000 and more
Low APR (varies from 7.9% to 19.9%) - nominal rate + loan processing charges
Extended repayment terms - as long as twenty-five years
Negotiable payback rules - grace period or payment holidays or early pay offs
Flexible and easy loan clauses - hidden charges, penalties and extra benefits like the Payment Protection Plan (PPI)
The only disadvantages of a secured deal are:
Slow loan approval - lender needs to evaluate the pledged collateral to decide the loan terms
Collateral seizure - in case of a repeated default, the lender can take over the pledged asset
For an unsecured loan, the loan seeker does not need to offer his asset as security against the loan amount. The absence of collateral ensures:
Swift loan approval - lender simply evaluates the loan seeker's credit history and future payback ability
Less risks - no threat of property seizure by the lender in the event of a default
The only disadvantages of an unsecured deal are:
Comparatively high APR (varies from 7.4% to 41%) - nominal rate + loan processing charges
Usually non-negotiable payback rules and firm loan clauses
Based on the above-mentioned comparative analysis, we can say that secured loans are appropriate when the monetary requirement is big and the loan seeker is not hesitant to pledge his asset. Unsecured loans, on the other hand, are suitable for people who have nothing substantial to pledge (tenants) and for those who do not wish to risk their priced asset (homeowners). In addition, they are good for those loans seekers who have small or immediate monetary requirements, as the procedure is fast and simple.
