What Is the Difference between Unsecured and Secured Loans

What Is the Difference between Unsecured and Secured Loans?

When you are planning on getting a loan, it’s good to know the difference between secured and unsecured loans. There are factors that determine whether you qualify for a secured or an unsecured loan. As you understand the differences between the two, you will still get to dive deeper into the factors that determine whether you should apply for a secured or an unsecured loan. Read on to distinguish between the two.

Secured Loans

The major factor that defines a secured loan is that it has security. Basically, security is an asset belonging to the borrower that is tied to the loan. It can be a piece of land, property, or a car. Just like the name suggests, the asset acts as a security measure so that in case a borrower fails to repay the loan, it can be used to recover the money. Since the loan is secured, it doesn’t attract high-interest rates.

Another important factor tied up with secured loans is that it is majorly associated with large amounts of money. If you are applying for a large sum of money, more than £10,000, you will have to apply for a secured loan. Since you have one of your assets acting as security, you give your lender the confidence to approve your loan amount. This means that a secured loan is more risky to a borrower and less risky to a lender.

Of great importance still, the issue of credit rating comes to the fore. If a borrower has a poor credit rating, a secured loan is the most likely option. This is a way of protecting a lender from the risk of failure to pay by the borrower. Thus, most lenders insist that borrowers with a poor credit record have to secure their loans to have them approved.

Unsecured Loans

Fundamentally, an unsecured loan is one that doesn’t have security to guarantee its approval. Given that the loan is unsecured, the interest rates are usually higher than those of a secured loan. It’s also worth pointing out that, usually, an unsecured loan has a lesser repayment period than a secured loan. However, the flexibility of both the repayment time and interest rate is up to the lender. Some unsecured loans can be delivered to your doorstep, these are known as doorstep loans.

Moreover, the credit history of a borrower plays a major role in an unsecured loan. Since there’s a higher risk associated with an unsecured loan, lenders opt to give such loans to borrowers who have a good credit record. If you have a good credit record, lenders will have the confidence to give you an unsecured loan.

Again, the question of the loan amount comes in. Compared with a secured loan, the loan amount for unsecured loans is usually smaller. The reason for this is that the risk is higher on the side of the lender than the borrower. Since the loan doesn’t have any security, lenders opt not to give out large sums of money.

Whether you are taking a secured or an unsecured loan, you need to plan well on how you will repay it. Having known the elemental differences between a secured and an unsecured loan, you are now able to know the one that you qualify for. Better still, you can get advice from a financial expert for more information.

What are the advantages of short-term loans?

What are the advantages of short-term loans?

Short term loans, as you would have guessed, are just that: loans lent for a short period. The repayment period is relatively shorter than conventional loans and can range from a few days to a few weeks or months. Short term loans are designed to benefit borrowers who need urgent money. Financial emergency, either in the form of medical expenses, car repairs, housing rent, travel plans, or anything that fits the description of an emergency overhead.

There are many advantages to availing a short-term loan, and the following points will help you understand the benefits of choosing a short-term loan over a traditional borrowing.

•Faster Approvals and Disbursements

Short-term loans, like payday loans, are hassle-free with quick turnaround time. It takes very little for anyone to qualify for a short-term loan, and the approval requirements are minimal. These loans can be applied online by filling out a short form; eligibility check and approval are almost instantaneous, unlike conventional loans that require tons of paperwork and weeks of waiting to secure approval. Once approved, these loans are usually disbursed on the same day, and you can expect the money in your account within a couple of hours, making them a great choice for emergency funding.

•Lower Interest Rates 

A primary principle of lending and borrowing is that the more the repayment term, the higher the interest you end up paying. Since the repayment term for a short-term loan is a few months or less, the interest amount shrinks. Also, even if the interest rate is higher than traditional loans, you end up paying significantly lesser over time.

•Improved Credit Ratings

To avail more substantial credits and financing, solid credit history is essential. Short-term loans, with their shorter payback periods, are an excellent way of boosting your credit score by paying off the loan on time. Higher credit scores can serve great benefits to smaller businesses and help them avail higher lines of credit by securing and paying off short-term loans on time.

•Bad Credit Scores Are Not a Deterrence

Emergency expenses do not chase people only with great credit scores; people with bad credit history also need to borrow. Short-term loans, with their non-discriminatory policy against people with bad credit scores, do not reject loans based on their credit profile. Short-term loans are real saviors for people with adverse credit profile trapped in a financial quandary.

•They are Unsecured Loans

Short-term loans are unsecured loans that require no collateral to be pledged on the part of the borrower. Thus, they spare the borrower of having to come up with a sizeable mortgage to secure funding during an emergency.

•Flexible Payback Terms

Short-term loans are available for shorter terms with highly flexible repayment options; they take into consideration your current financial standing and ability to repay, to offer you the most relevant options for repaying the loan using the means available to you. Viable repayment terms and payback schedule ensure that the borrower can conveniently part with the installment amount without compromising on his basic needs.