Should I Use Secured or Unsecured Credit Loans?

When it comes to credit loans, there are ultimately two different types which you are able to investigate. One of these is a secured credit loan, and the other is an unsecured credit loan.

In this article, we are going to take a look at the differences between these two types of credit loans, and see which might best suit your individual circumstances - whatever they may be. Hopefully, by the time you have finished reading, you will be confident in making a selection between secured and unsecured credit.

Secured Credit Loans

A secured credit loan is a loan which is backed up by some type of physical asset. This might be one of the following things:

• House
• Car
• Assets such as furniture, personal belonging, or items of high value (i.e. jewellery)
• Other cash assets which are currently locked in to investments (i.e. shares, term deposits, etc).

 

Essentially, the security is used by the bank or finance company to provide "security" over your loan - and to comfort the bank that if you fail to make a payment on your loan, there will be consequences.

These consequences are often that the items which had the security against it - i.e. a car for instance, would be repossessed by the bank, and sold to cover the payment which was not made. In this respect, a secured loan is slightly more risky from a consumer standpoint, as you are putting your own items at risk.

The upside and benefit to a secured credit loan is that the interest rate will be significantly lower than that on an unsecured facility. The difference in interest rates could be as much as 5 or even up to 8 percent per annum!

Unsecured Credit Loans

In contrast to a secured credit loan, an unsecured credit loan is pretty much the opposite. The bank is willing to lend money to you without any security - and therefore there is less risk to you, but more to the financier.

The implications of this? Well - because of the additional risk, the finance company will charge you more as a result of the risk premium in the funding models that they use. This means that it will be more expensive for you to maintain such a loan in the longer term.